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Journal  of  Political  Economy,  Vol.  XVII,- Nos.  5,  6,  and  7,  May,  June,  July,  1909 


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AN  ECONOMIC  HISTORY  OF  THE  ILLI¬ 
NOIS  AND  M I C  H I  GAN— CAN  A  L 


EDMUND  J.  JAMES 


J.  W.  PUTNAM 


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PRINTED  AT  THE  UNIVERSITY  OF  CHICAGO  PRESS 


AN  ECONOMIC  HISTORY  OF  THE  ILLINOIS  AND 

•  MICHIGAN  CANAL.  I 

I 

The  project  for  the  development  of  a  lakes-to-the-gulf  water¬ 
way  by  means  of  a  canal  across  the  Chicago  divide,  which  even¬ 
tuated  in  the  construction  of  the  Illinois  and  Michigan  Canal, 
took  form  in  the  early  part  of  the  nineteenth  century.  It  was  an 
integral  part  of  the  effort  to  reduce  the  burden  of  transportation 
which  led  to  the  general  movement  for  internal  improvements 
so  characteristic  of  the  period. 

This  divide  had  long  been  used  as  a  portage,  and  although 
Gallatin’s  plan  of  1808  did  not  provide  for  adequate  connection 
between  the  Mississippi  valley  and  the  Great  Lakes,  still  there 
were  persons  who  strongly  advocated  this  water-way.1  How¬ 
ever,  the  general  interest’  was  too  weak  to  carry  it  through  at 
the  time.  The  War  of  1812  revived  the  plans,  and  the  Indian 
treaty  of  1816,  extinguishing  the  Indian  title  to  the  section,  was 
the  first  practical  step  taken  toward  its  accomplishment.  Shortly 
after,  two  reports  to  the  national  government  611  the  physio¬ 
graphic  features  of  the  region  favored  the  canal,2  as  did  Calhoun 
in  his  report  as  secretary  of  war  in  1819,  but  it  was  not  until  a 
little  later,  when  local  interests  were  more  aroused,  that  any  real 
progress  was  made. 

On  the  admission  of  Illinois  to  the  Union  the  change  of  the 
boundary  line  to  include  Chicago  brought  the  whole  project 
within  the  limits  of  the  state,  thus  increasing  state  interest  and 
facilitating  action.  The  second  General  Assembly  of  the  state 
sought  the  aid  of  Congress,  and  asked  for  authority  to  construct 
the  canal,  a  donation  of  nublic  lands,  and  use  of  the  2  per  cent, 
foaa  tund  for  mis  purpose/  .The  reply  of  Congress  was  the 

1  Notabl}  Peter  B.  Porter  of  New  York;  vide  Annals  of  Congress,  nth 
Cong.,  2d  session,  II,  pp.  1388-93;  and  A.  B.  Woodward  of  Michigan;  vide 
Nile’s  Register,  Vol.  VI,  p.  139. 

2  American  State  Papers,  Miscl.,  II,  pp.  555-57.  ' 

*  Illinois  Senate  Journal,  2d  General  Assembly,  pp.  103,  106.  > 


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THE  ILLINOIS  AND  MICHIGAN  CANAL 


273 


act  of  March  30,  1822,  authorizing-  construction  and  granting 
a  strip  of  land  for  the  canal,  but  only  ninety  feet  additional  on 
each  side.  The  state  then  created  a  commission  which  made 
estimates  of  the  cost  varying  from  $639,000  to  $713,000. 
Another  appeal  to  Congress  for  aid  failed.  Hence  the  state  in 
January,  1825,  incorporated  the  Illinois  and  Michigan  Canal 
Co.  with  $1,000,000  capital.4  This  company  was  unable  to  dis¬ 
pose  of  its  stock,  so  in  1827  Congress  donated  the  alternate  sec¬ 
tions  of  laud  in  a  strip  five  miles  wide  on  each  side  of  the  canal 
route.  In  1829  a  second  state  commission  was  appointed  to 
raise  funds  by  selling  land,  securing  a  loan,  or  otherwise,  but  its 
efforts  proved  vain,  and  in  1833,  after  a  lingering  existence, 
during  which  its  members  became  convinced  that  a  railroad 
would  be  better  than  a  canal,  it  was  abolished.  In  the  political 
campaign  of  1834  the  question  of  a  canal. was  uppermost  in  the 
northern  part  of  the  state,  and  a  staunch  supporter  of  the  water¬ 
way  was  elected  governor.  Finally,  by  act  of  February  10,  1835, 
a  third  canal  commission  was  provided  for  and  given  the  power 
to  raise  funds  and  start  construction. 

II 

It  was  a  Herculean  task  that  the  young  state  had  set  for  itself, 
but,  led  on  by  that  large  optimism  which  has  ever  been  character¬ 
istic  of  the  continually  advancing  West,  the  people  of  Illinois 
were  not  dismayed  by  the  magnitude  of  the  undertaking.  With 
prophetic  vision  they  beheld  the  completed  canal  bearing  on  its 
placid  waters  the  products  of  the  East,  the  We;  ^^t  ^rth,  and 

•  •  •  V'  ^  # 

the  South ;  they  saw  the  cities,  villages,  farms,  and  factories  which 
would  ultimately  come  into  being  along  its  course;  but  they  did 
not  see  so  clearly  the  intervening  difficulties,  which  lay,  like  the 
sunken  road  of  Ohain,  between  project  and  accomplishment.  For 
ten  years  the  commercial  and  industrial  importance  of  the  Erie 
Canal  had  been  a  familiar  story  to  the  people  of  Illinois,  and  they 
confidently  expected  to  see  that  history  repeated  in  their  own 
state. 

The  undertakng  had  been  long  delayed  because  of  the  lack  of 

4  Laws  of  Illinois,  4th  General  Assembly,  1st  session,  pp.  160-64. 


* 


274 


JOURNAL  OF  POLITICAL  ECONOMY 


funds  with  which  to  pay  the  cost  of  construction,  but  New  York 
and  Ohio  had  financed  their  canals  by  means  of  loans.  Pennsyl¬ 
vania  had  undertaken  a  great  system  of  internal  improvements 
financed  in  the  same  way.  With  the  land  grant  as  a  basis,  and 
with  the  expected  earnings  of  the  canal  as  an  additional  security, 
the  method  of  loan  financiering  seemed  entirely  feasible.5  It  was, 
therefore,  to  this  method  that  the  state  first  turned,  and  on  this 
method  it  chiefly  depended  to  the  end. 

The  act  of  February  10,  1835,  which  provided  for  the 
appointment  of  the  new  canal  commission,  authorized  the  gov¬ 
ernor  to  negotiate  a  loan  not  exceeding  $500,000  on  a  pledge  of 
the  canal  lands  and  tolls  and  “such  other  means  as  the  govern¬ 
ment  of  the  United  States  may  hereafter  give  toward  the  con¬ 
struction  of  the  Illinois  and  Michigan  Canal.”6  As  evidences  of 
indebtedness  the  state  issued  certificates  known  as  .Illinois  and 
Michigan  Canal  Stock,  drawing  5  per  cent,  interest  and  payable 
at  the  option  of  the  state  any  time  after  i860.7  The  proceeds 
of  this  loan  as  well  as  those  from  the  sale  of  lands  and  lots,  and 
from  the  later  operation  of  the  canal  itself,  when  completed,  were 
to  constitute  a  canal  fund  intended  entirely  for  the  construction 
of  the  canal  and  the  payment  of  interest  on  the  canal  debt. 

Correspondence  was  at  once  entered  into  with  New  York 
financiers,  and  ex-Governor  Edward  Coles  was  appointed  the 
special  representative  of  the  state'  to  visit  the  eastern  cities  and 
negotiate  the  loan.8  But  his  efforts  with  the  financiers  of  New 
York  Philadelphia  and  with  the  agents  of  the  Rothschilds 
proved  entiv^jy-^tile.  Basing  their  opinions  on  the  experience  of 
the  Erie  Canal,  some  of  the  New  York  bankers  were  convinced, 
however,  that  the  loan  would  eventually  be  a  safe  one  because,  by 
giving  to  Illinois  both  an  eastern  and  a  southern  seaport  con- 

5  Report  of  the  Senate  Committee  on  Internal  Improvements,  in  Illinois 
Senate  Journal,  1834-35,  PP-  97-99- 

"The  members  of  the  General  Assembly,  as  well  as  Governor  Duncan, 
believed  that  if  the  land  grant  already  made  should  prove  inadequate  to  pay  for 
the  construction  of  the  canal,  the  federal  government  would  supplement  it  by 
further  grants. 

7  Laws  of  Illinois,  1834-35,  pp.  222,  223. 

8  Illinois  House  Journal,  1835-36,  pp.  12,  13. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


27S 


nection,  the  canal  would  lead  to  such  an  economic  development 
of  the  region  as  greatly  to  enhance  the  value  of  the  canal  lands;0 
but  in  the  meantime  no  sufficient  provision  was  made  for  the  pay¬ 
ment  of  the  interest  if  the  sale  of  lands  and  lots  should  fail  to 
provide  the  necessary  funds,  Furthermore,  as  interest  rates  in 
this  country  were  at  that  time  higher  than  5  per  cent.,  it  would 
be  necessary  to  dispose  of,  the  canal  stocks  in  Europe,  and  the 
European  financiers  were  not  disposed  to  accept  loans  based  on 
wild  lands  in. the  United  States.10  Other  states  had  pledged  the 
faith  of  the  state  in  support  of  the  loans  which  they  had  raised 
for  similar  purposes,  and  the  bankers  who  had  taken  up  their 
stocks  would  not  accept  those  of  Illinois  on  any  other  terms.11 

As  a  result  of  his  experience  and  the  conferences  held  with 
the  financiers,  Coles  became  convinced  that  the  loan  could  be 
raised  only  on  a  pledge  of  the  faith  of  the  state  for  the  payment 
of  the  principal  and  the  interest.12  Having  been  brought  to  the 
same  conclusion,  Governor  Duncan  urgently  recommended  to  the 
General  Assembly  that  such  a  step  be  taken.  He  the  more  readily 
made  the  recommendation  because  he  was  convinced  that  in  no 
case  would  the  burden  of  the  debt  fall  on  the  state.  Basing  his 
opinion  on  the  prices  received  by  the  federal  government  at  the 
sale  of  its  alternate  sections  of  land  at  Chicago  in  the  previous 
June,  he  considered  the  market  value  of  the  canal  lands  ample 
to  reimburse  the  state.13  He  expected  the  value  of  the  land  would 
continually  advance  with  the  progress  of  the  work,  and  ultimately 
bear  the  entire  cost  of  the  construction.  Furthermore,  having 
but  recently  left  the  halls  of  Congress,  he  thought  he  knew  the 

0  Letter  of  J.  Delaficld,  president  of  the  Phoenix  Bank  of  New  York,  to 
Edward  Coles,  April  20,  1835,  Illinois  House  Journal,  1835-36,  pp.  19-21. 

10  Letter  of  Edward  Coles  to  Governor  Duncan,  dated  at  Philadelphia,  April 
28,  1835,  Illinois  House  Journal,  1835-36,  pp.  14-18. 

14  Letter  of  J.  Delafield  to  Edward  Coles,  dated  New  York,  April  20,  1835, 
Illinois  House  Journal,  1835-36,  pp.  i©r2i. 

12  Letter  of  Edward  Coles  to  Governor  Duncan,  in  Illinois  House  Journal, 
^835-36,  pp.  14-18.  Vide  also  letter"  of  Charles  Butler  to  Edward  Coles, 
ibid.,  1835-36,  pp.  21,  22. 

13  The  estimates  of  the  market  value  of  the  land  at  that  time  varied  from 
$1,000,000  to  $3,000,000,  but  probably  averaged  about  $2,000,000. 


' 


2j6 


JOURNAL  OF  POLITICAL  ECONOMY 


temper  of  that  body  well  enough  safely  to  count  on  an  additional 
grant  of  land  if  it  should  be  found  that  the  grant  already  made 
was  not  sufficient  to  cover  the  expense  of  constructing  the  canal.14 
The  recommendation  met  with  a  ready  response  on  the  part  of 
the  General  Assembly.36  Accordingly,  on  January  9,  1836,  a 
new  act  was  passed  reorganizing  the  canal  commission  and  pled¬ 
ging  the  credit  and  faith  of  the  state  to  the  payment  of  the 
principal  and  interest  of  the  loan.10 

A  new  commission  was  appointed  at  once  and  used  every- 
effort  to  get  the  canal  under  way  at  the  earliest  possible  moment, 
believing  that  the  more  actively  the  work  was  pushed,  the  easier 

would  be  the  task  of  financing  it.17  But  the  fact  soon  became 

•  * 

apparent  to  the  commissioners  that  the  magnitude  of  the  under¬ 
taking  had  been  generally  misunderstood.  James  M.  Bucklin’s 
■*  estimate  of  $4,043*086.50  as  the  .cost  of  a  lake-fed  canal, 
although,  at  the  time  made,  regarded  by  the  friends  of  the 
project  as  excessive,  was  now  found' to  be  entirely  too  low  for 
the  construction  of  a  canal  of  the  dimensions  which  its  place 
in  a  great  system  of  waterways  and  its  probable  future  traffic 
would  demand.18  Therefore,  although  the  initial  expense  of 
the  canal  would  be  greatly  increased,  the  commissioners  deter- 


14  Governor  Duncan’s  message,  December  8,  1835,  Illinois  Senate  Journal , 
1835-36,  p.  7- 

13  The  Senate  Committee  on  Internal  Improvements  estimated  the  value  of 
the  canal  property  as  follows : 

About  250  lots  4*13'  fhicago . : . . $  312,500.00 

250  lots  in  Ottawa*. .  50,000.00 

277.383  acres  of  land  (at  $5  per  acre) .  1,386,915.00 

Fractional  section  15  adjoining  Chicago  and  containing  about 

160  acres  .  160,000.00 


Estimated  total  value  . $1,909,415.00 

The  committee  believed  that  by  adding  the  value  of  the  water  power  which 
would  be  developed,  the  suggested  plan  of  financiering  would  be  entirely  prac¬ 
ticable. — Illinois  Senate  Journal ,  1835-36,  p.  101. 

10  Laws  of  Illinois ,  1836,  pp.  145-54. 

17  The  commission  was  composed  of  General  William  F.  Thornton,  Colonel 
Gurdon  S.  Hubbard  and  Colonel  William  B.  Archer. 

18  Bucklin’s  estimate  had  been  for  a  canal  forty-five  feet  wide  at  the  water 
level,  thirty  feet  wide  at  the  bottom,  and  having  a  depth  of  four  feet  of  water. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


277 

mined,  on  the  advice  of  the  chief  engineer,  William  Gooding,19 
to  adopt  the  plan  of  a  lake-fed  canal  sixty  feet  wide  at  the  water 
level,  thirty-six  feet  wide  at  the  bottom,  and  having  a  minimum 
depth  of  six  feet  of  water.20  They  adopted  this  plan  because 
they  were  convinced  that  the  increased  utility  of  the  larger  canal 
would  more  than  counterbalance  the  increased  cost  of  construc¬ 
tion,  and  because  they  agreed  with  Governor  Duncan  that  to 
construct  a  canal  adequate  to  future  needs  was  preferable  to  an 
enlargement  after  it  had  proven  inadequate,  and  was  also  cheaper 
in  the  end.21  The  work  was  laid  out  in  three  divisions,  known 
as  the  Summit  division,  the  Middle  division,  and  the  Western 
division,  and  these  were  subdivided  into  sections  of  varying 
length.22  Deeming  it  good  policy  to  begin  operations  in  the 
vicinity  of  Chicago,  the  commissioners,  on  June  6,  1836,  con¬ 
tracted  for  the  construction  of  a  portion  of  the  Summit  division.23 
It  had  been  intended  to  contract  for  the  entire  division,  but,  on 
account  of  the  abnormally  high  wages  of  labor  and  prices  of 
provisions  and  supplies,  the  bids  were  almost  uniformly  above 
the  estimates  of  the  engineers,  and  on  some  of  the  sections  the 
discrepancy  between  the  estimates  and  the  bids  was  so  great  that 
the  commissioners  refused  to  accept  them.24  It  was  hoped  that 

19  As  a  former  engineer  on  the  Erie  Canal,  Gooding  was  aware  that  New 
York  had  made  the  mistake  of  constructing  a  canal  inadequate  to  its  rapidly 
growing  traffic,  and  desired  to  prevent  the  same  mistake  being  made  by  Illinois. 

20  Report  of  the  Board  of  Commissioners  of  the  Illinois  and  Michigan 
Canal,  1836,  p.  8. 

21  Governor  Duncan’s  inaugural  address,  Illinois  Senate  Journal ,  1834-35, 
p.  26. 

22  The  seven  miles  of  earth  excavation  from  the  Chicago  River  to  the  “Point 
of  Oaks”  were  divided  into  half-mile  sections.  From  that  point  to  the  termina¬ 
tion  of  the  Summit  division  there  were  twenty-four  sections  of  thirty  chains  each. 

23  The  act  of  January  9,  1836,  required  the  commissioners  to  hold  a  sale 
of  lots  at  Chicago  on  June  20,  of  that  year,  and  it  was  naturally  assumed  that 
they  would  bring  better  prices  if  active  preparations  for  the  construction  of  the 
canal  were  being  carried  on  in  that  vicinity. 

24  Laborer’s  wages  were  from  twenty  to  thirty  dollars  a  month  and  board. 
Pork  at  Chicago  was  from  $20  to  $30  a  barrel;  flour  from  $9  to  $12;  salt  from 
$12  to  $15;  oats  and  potatoes,  seventy-five  cents  a  bushel;  and  other  articles  of 
consumption  commanded  similar  prices. — Davidson  and  Stuve,  History  of 
Illinois,  p.  479. 


278 


JOURNAL  OF  POLITICAL  ECONOMY 


the  experience  of  the  contractors  whose  bids  were  accepted  would 
demonstrate  the  possibility  of  carrying  on  the  work  at  the  lower 
figures,  and  that,  by  the  time  they  had  gotten  the  work  under 
way,  the  prices  of  labor  and  materials  would  decline  sufficiently 
so  the  remaining  sections  could  be  profitably  taken  at  the  esti¬ 
mates  of  the  engineers,  or  even  below  them.  But  these  hopes 
were  doomed  to  disappointment.  Some  of  those  whose  bids  had 
been  accepted  found  it  necessary  to  abandon  their  undertakings, 
although  such  an  act  involved  the  forfeiture  of  a  penal  bond  to 
the  extent  of  5  per  cent,  of  the  amount  of  the  original  contract.25 

The  work  of  constructing  the  canal  was  formally  begun  with 
imposing  ceremonies,  and  a  great  celebration  at  Canalport  on 
the  Chicago  River,  July  4,  1836.  But  not  much  progress  was 
made  during  the  summer  and  autumn.  Much  of  the  time  was 
consumed  in  preliminary  preparations  such  as  constructing  roads 
across  the  marsh  on  the  eastern  sections,  building  houses  for  the 
laborers,  and  procuring  machinery  and  other  supplies.26  Being 
desirous  of  extending  the  work  as  rapidly  as  possible,  on  October 
20  the  commissioners  let  the  contracts  for  twelve  sections  on  the 
Western  division,  including  the  steamboat  basin  at  La  Salle.27 
Preliminary  operations  were  accordingly  begun  at  the  western 
extremity  of  the  canal  as  well  as  on  the  Summit  level.  Owing 
to  the  scarcity  of  laborers  and  to  floods  in  the  Des  Plaines  valley, 
however,  but  little  progress  was  made  on  either  portion  of  the 
work  during  the  autumn  and  winter  months.28 

The  commissioners  expected  that  the  work  would  really 
begin  on  a  large  scale  with  the  opening  of  the  following  season, 
but  in  this  expectation  they  were  disappointed.  In  the  first  place, 
the  continued  scarcity  of  laborers  along  the  line  of  the  canal 
seriously  retarded  the  progress  of  the  work  till  well  on  toward 
the  close  of  the  summer,  by  which  time  they  had  begun  to  arrive 

26  Report  of  the  Board  of  Canal  Commissioners,  1836,  pp.  10,  11. 

28  Ibid.,  1838,  p.  5. 

27  Ibid.,  1836,  p.  xi. 

28  Engineer’s  report,  Illinois  Senate  Journal,  1837,  p.  28.  With  the  hope  of 
drawing  to  the  Illinois  and  Michigan  Canal  laborers  from  the  eastern  states, 
advertisements  were  inserted  in  the  eastern  papers  offering  wages  of  from  $20 
to  $26  a  month. — Niles’  Register,  Vol.  50,  p.  388. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


279 

in  considerable  numbers  from  the  eastern  states  and  Canada.29 

In  the  second  place,  a  threatened  change  of  the  plan  for  the  con- 

> 

struction  of  the  canal  retarded  the  letting  of  further  contracts, 
and,  consequently,  delayed  the  preparation  for  pushing  the  work 
so  soon  as  a  sufficient  force  of  laborers  could  be  secured. 

The  plan  adopted  by  the  commissioners  was  attacked  by 
the  House  Committee  on  Internal  Improvements  as  entirely 
impracticable  because  beyond  the  financial  ability  of  the  state 
to  accomplish.  The  committee  claimed  that  the  estimates  of 
the  engineers  were  untrustworthy  because,  first,  they  had  omitted 
entirely  several  important  items  of  expense;  and,  secondly,  they 
had  underestimated  the  cost  of  others.30  By  the  estimates 
of  the  committee,  the  canal  would  cost  $13,253,875.15,  or 
nearly  $4,600,000.00  more  than  had  been  anticipated.31  It 
proposed,  therefore,  that  the  “shallow  cut”  plan  be  adopted  on 
the  Summit  level,  and  that  the  canal  should  terminate  at 
Lake  Joliet,  slack  water  navigation  being  provided  from  that 
point  by  means  of  locks  and  dams  in  the  Des  Plaines  River. 
The  result  of  the  attack  on  the  plan  of  the  commissioners 
was  the  reorganization  of  the  canal  board  and  the  appoint¬ 
ment  of  Benjamin  Wright,  of  New  York,  as  a  special  engineer 
to  re-examine  the  route  of  the  canal  and  give  to  the  General 
Assembly  an  expert  opinion  on  the  relative  feasibility  of  the 
two  plans.32  Wright’s  report,  made  October  23,  1837,  strongly 

29  Report  of  Board,  of  Canal  Commissioners,  1838,  p.  6. 

30  The  total  cost  as  estimated  by  the  canal  engineers  was  $8,654,337.51. — The 
Seventh  Annual  Report  of  the  Board  of  Canal  Commissioners,  p.  73. 

31  The  engineers  had  estimated  the  excavation  at  33  cents  a  cubic  yard 

and  stone  excavation  at  $1.54  The  committee  estimated  earth  excavation 

at  40  cents  a  cubic  yard;  stone,  one-third  at  $1.24  and  two-thirds  at 
$2,543-45-.  It  also  added  754  miles  of  slope  wall,  18  foot  cuttings,  at  $4.00  a 
perch — $519,540.00;  a  towing  path  26  miles  long,  12  feet  wide,  and  8  feet  deep, 
one-half  stone  at  $1.25,  and  one-half  earth  at  25  cents  per  cubic  yard — $366,- 
083.00 ;  and  a  guard  lock  at  the  junction  of  the  deep  cut  with  the  Chicago 
River  at  a  cost  of  $45,000.00.  In  addition  to  these  items  the  committee  esti¬ 
mated  the  cost  of  contingencies  and  superintendence  at  $1,329,451.48;  and 
improvement  of  five  miles  of  the  Chicago  River  at  $16,565.75.  For  the  entire 
argument  of  the  committee,  vide  Illinois  House  lournai,  1836-37,  pp.  326-47. 

32  The  new  board  consisted  of  General  W.  F.  Thornton,  General  Jacob  Fry, 
and  Colonel  J.  A.  McClernand.  Under  the  act  of  March  2,  1837,  the  board 


28o 


JOURNAL  OF  POLITICAL  ECONOMY 


supported  the  plan  adopted  by  the  commissioners,  and  urgently 
recommended  the  completion  of  the  work  on  that  plan.33  This 
report  was  accepted  as  removing  all  doubt  of  the  continuance 
of  the  work  on  the  plan  adopted. 

In  the  third  place,  the  financial  situation  in  the  early  part  of 
the  summer  of  1837  tended  still  further  to  embarrass  the  activi¬ 
ties  of  the  commissioners  and  the  progress  of  the  work.  The 
preceding  year  had  been  a  successful  one  for  the  canal  finances. 
Under  the  conditions  established  by  the  act  of  January  9,  1836, 
the  canal  bonds  had  become  marketable  securities.  Governor 
Duncan  easily  negotiated  the  authorized  loan  in  New  York  at  a 
premium  of  5  per  cent.34  The  sales  of  lots  had  also  resulted 
very  differently  from  those  of  six  years  before.  The  real- 
estate  market  at  Chicago  had  been  extremely  active  for  the  past 
two  years,  and  the  prospect  of  the  early  construction  of  the  canal 
gave  it  a  still  firmer  tone.35  Under  the  favorable  market  condi¬ 
tions,  the  commissioners  were  able  to  dispose  of  375  lots  in 
Chicago  in  June,  1836,  at  the  total  price  of  $1, 3  5  5,75  5, 36  and 

became  elective  by  the  General  Assembly,  and  subject  to  its  control,  iristead  of 
receiving  its  appointment  from  the  governor  and  being  subject  to  his  control, 
as  its  predecessor  had  been. 

33  The  following  extract  from  Wright’s  report  indicates  his  opinion  of  the 
importance  of  the  work  as  planned  by  the  commissioners :  “The  Illinois  and 
Michigan  Canal,  as  now  projected,  and  under  construction,  may  truly  be  con¬ 
sidered  as  one  of  the  greatest  and  most  important  in  its  consequences  of  any 
work  of  any  age  or  nation.  In  looking  over  this  connection  between  the  Lakes 
and  the  Mississippi  River,  it  is  no  doubt  superior  in  its  advantages  to  any 
other  which  can  ever  be  formed.  It  is  the  shortest  artificial  work,  with  the 
least  lockage.  The  climate,  soil,  and  the  capability  of  productions  of  the 
country  which  will  be  benefited  by  the  construction  of  this  work,  will  certainly 
equal,  if  they  do  not  exceed,  any  other  port  of  the  United  States ;  and  when  I 
view  it  in  this  light,  I  think  it  justly  merits  to  be  executed  upon  the  best  and 
most  permanent  plan,  and  will  justify  by  its  revenue  any  outlay  which  may  be 
put  upon  it  in  reason.” — Report  of  the  Board  of  Canal  Commissioners ,  1838,  p.  80. 

34  At  first  he  refused  to  sell  more  than  $100,000  of  the  bonds  on  the  terms 
offered,  thinking  5  per  cent,  too  low  a  premium ;  but  obtaining  no  better  offer 
he  sold  the  remaining  $400,000  in  1837. — Illinois  House  Journal,  1836-37,  p.  15. 

35  Wright’s  “ Chicago ,”  pp.  4,  5. 

36  Four  hundred  and  fifteen  lots  were  sold,  but  forty  of  them  were  forfeited 
by  the  purchasers’  failing  to  make  the  first  payment. — Report  of  the  Board  of 
Canal  Commissioners,  1836,  p.  12. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


281 


three  months  later,  September  26,  they  sold  at  Ottawa  seventy- 
eight  lots  for  $21,358,  an  excess  of  more  than  $2,000  above  the 
appraised  value.  In  accordance  with  the  provisions  of  the  act 
authorizing  these  sales,  one- fourth  of  the  proceeds  and  the 
interest  on  the  remaining  three-fourths  were  paid  to  the  treas¬ 
urer  of  the  canal  fund.  With  this  sum  together  with  the 
second  instalments  which  would  fall  due  respectively  in  June 
and  September,  1837,  and  with  the  proceeds  of  the  loans  which 
the  governor  had  been  authorized  to  negotiate,37  it  was  confi¬ 
dently  expected  that  the  work  could  be  readily  maintained  during 
the  year.38 

The  work  of  the  season  of  1837  had  but  fairly  gotten  under 
way,  however,  when  the  panic  of  that  year  swept  over  the  state. 
As  a  means  of  self-protection  the  State  Bank  of  Illinois  sus¬ 
pended  specie  payments  on  May  24.  At  that  time  it  held  $390,- 
834.89  of  canal  funds.  Moreover,  within  the  next  month  the 
second  instalment  of  the  payments  on  the  Chicago  lots,  amount¬ 
ing  to  something  like  $375,000,  would  fall  due,  and  unless  other 
provisions  were  made  for  the  disposal  of  it,  it  would  become  a 
deposit  in  the  Chicago  branch  of  the  State  Bank.  The  situation 
presented  a  grave  danger  to  the  prosecution  of  the  work  on  the 
canal.  Under  the  law  of  Illinois,  if  the  suspension  of  specie 
payments  should  continue  for  more  than  sixty  days,  the  bank 
would  forfeit  its  charter.39  Such  an  event  would  tie  up  the 
canal  funds  during  an  indefinite  period  of  liquidation.  On  the 
other  hand,  if  the  bank  were  forced  to  resume  specie  payments 
it  would  soon  be  drained  of  its  specie  and  ultimately  compelled 
to  pay  its  creditors  in  depreciated  currency.  In  the  first  case  the 

37  By  the  act  of  March  2,  1837,  the  governor  had  been  authorized  to  negoti¬ 
ate  a  second  loan  for  $500,000. 

38  On  May  4,  1837,  the  treasurer  of  the  canal  fund  reported  the  available 


funds  for  the  work  of  the  year  as  follows : 

Cash  in  branch  bank  at  Chicago . $297,081.53 

Loan  to  be  negotiated  by  the  Governor .  500,000.00 

Second  instalment  of  payments  on  Chicago  and  Ottowa  lots .  385,591.39 

Total  . $1,182,672.92 


Report  of  the  Treasurer  of  the  Illinois  and  Michigan  Canal,  18 37;  also  pub¬ 
lished  in  the  Illinois  Senate  Journal,  1837,  p.  24. 

^Law  of  February  12,  1835,  supplemented  by  an  act  of  January  18,  1836. 


282 


JOURNAL  OF  POLITICAL  ECONOMY 


work  on  the  canal  would  have  to  stop  until  such  time  as  the  state 
could  secure  other  funds  with  which  to'  carry  it  on.  In  the 
second  case,  the  cost  to  the  state  would  be  still  further  enhanced 
by  the  depreciation  of  the  currency  with  which  it  would  have  to 
pay  its  creditors  and  the  consequent  higher  prices  it  would  be 
compelled  to  pay  for  the  construction  of  the  portions  of  the 
work  not  already  under  contract,  to  say  nothing  of  the  possibility 
of  driving  the  contractors  then  at  work  into  bankruptcy.  After* 
a  careful  canvass  of  the  situation,  Governor  Duncan  called  the 
General  Assembly  to  meet  in  special  session  on  July  io,-  and  it 
legalized  an  indefinite  suspension  of  specie  payments.40 

By  the  autumn  of  1837,  however,  work  on  the  canal  had 
assumed  the  proportions  which  the  commissioners  had  antici¬ 
pated  several  months  earlier.41  And,  although  the  sudden  in¬ 
crease  of  a  transient  population  and  the  consequent  enlarged 
demand  for  materials  and  provisions  in  an  undeveloped  region 
added  materially  to  the  financial  burdens  of  the  contractors,  the 
work  was  carried  forward  with  such  vi^or  that  at  the  close  of 
Governor  Duncan’s  administration  in  December,  1838,  the  entire 
line  of  the  canal  was  under  contract  except  about  twenty-three 
miles  of  the  Middle  division  between  Dresden  and  Marseilles.42 

40  At  the  time  of  suspension  the  State  Bank  was  indebted  to  the  state  as 


follows : 

Capital  stock  held  by  state . $100,000.00 

Agreement  to  pay  Wiggins  loan .  100,000.00 

State  deposits  held . 388,669.51 

Canal  funds  held  in  Chicago  branch . 285,834.89 

Canal  fund  on  N.  Y.  loan  and  premium .  105,000.00 


Total  . $979,504.40 


Vide  Governor  Duncan’s  message,  Senate  Journal,  Special  Session,  1837,  p.  9. 

41  The  expenditures  for  work  on  the  canal  were  $70,902.30  from  December 
1,  1836,  to  June  1,  1837.  The  expenditures  for  the  year  1837  were  $350,649.90. 
Evidently,  more  than  $280,000.00  of  this  sum  was  expended  after  June  1. 

42  Enhanced  prices  of  supplies  resulting  from  the  greatly  increased  demand 
and  the  difficulty  of  supplying  machinery  and  tools  with  which  to  utilize  to  best 
advantage  the  greater  labor  supply  proved  so  great  a  financial  burden  that 
several  contractors  were  forced  to  abandon  their  contracts.  In  order  to  prevent 
others  from  pursuing  the  same  course,  the  commissioners  established  a  store 
at  Lockport  from  which  they  furnished  to  the  contractors  such  supplies  as  were 
not  obtainable  in  the  region  of  the  canal,  and  deducted  the  price  of  these 
supplies  from  the  contractors’  monthly  estimates.  The  result  was  so  satis- 


THE  ILLINOIS  AND  MICHIGAN  CANAL  283 

Several  sections  of  the  Western  division  were  completed  and 
others  far  advanced.43 

Henceforth  the  greatest  problem  of  the  commissioners  was 
that  of  supplying  sufficient  funds  to  enable  the  contractors  to 
continue  the  work  and  maintain  the  labor  that  was  available. 
The  two  loans  authorized  by  the  acts  of  January  9,  1836,  and 
March  2,  1837,  had  yielded  a  revenue  of  $1,036,21 1.67.44  Up 
to  December  3,  1838,  $444,292.00  had  been  received  from  the 
sale  of  canal  lands  and  lots.  Thus  far  the  funds  received  from 
these  sources  had  proven  sufficient  to  maintain  the  work,  but  it 
became  evident  that  provision  must  be  made  soon  for  further 
available  resources  if  the  work  was  to  continue.  There  had 
already  been  paid  out  for  work  done,  $1,434, 838. 02. 45  The 
funds  in  the  treasury  were  diminishing  and  the  monthly  ex¬ 
penditures  on  the  canal  were  rapidly  increasing.46  A  loan  of 
$4,000,000,  bearing  6  per  cent,  interest,  was  therefore  author¬ 
ized,47  and  ex-Governor  John  Reynolds  and  Hon.  R.  M.  Young, 
at  that  time  a  United  States  senator  from  Illinois,  were  appointed 
special  agents  of  the  state  to  negotiate  the  loan. 

In  April,  1839,  Mr.  Reynolds  negotiated  two  loans.  The 

factory  that  no  more  contracts  were  abandoned,  and  those  that  had  been  given 
up  were  re-let  to  the  contractors  who  had  continued  at  work. — Report  of  the 
Board  of  Commissioners  of  the  Illinois  and  Michigan  Canal,  1836,  p.  6. 

43  Governor  Duncan’s  message,  December  4,  1838 ;  Illinois  House  Journal, 
1838-39,  PP-  13,  i4- 

44  Each  act  authorized  a  loan  of  $500,000.00.  The  first  loan  was  placed  in 
two  instalments  of  $100,000.00,  and  $400,000.00  respectively,  and  at  a  premium 
of  5  per  cent.  The  second  was  placed  at  par.  The  proceeds  of  the  two  were 


as  follows : 

$500,000  at  5  per  cent,  premium . $525,000.00 

500,000  at  par .  500,000.00 


$1,025,000.00 


Interest  on  deposits, .  11,211.67 

Aggregate  proceeds  . $1,036,211.67 


Report  of  Board  of  Canal  Commissioners,  1838,  p.  53. 

45  Report  of  the  Board  of  the  Canal  Commissioners,  1838,  p.  61. 

48  The  increase  of  expenditures  is  roughly  indicated  by  the  following  state¬ 
ment  of  annual  payments  for  work  done  on  the  canal:  1836,  $39,260.58;  1837, 
$350,649.90;  1838,  $911,902.40. 

47  By  act  of  February  23,  1839. 


284 


JOURNAL  OF  POLITICAL  ECONOMY 


first  for  $300,000  was  placed  with  John  Delafield,  president  of 
the  Phoenix  Bank  of  New  York.  By  the  terms  of  this  loan, 
however,  it  would  not  afford  much  financial  aid  to  the  work  on 
the  canal  till  late  in  the  year.48  The  second  gave  more  immediate 
results.  It  was  for  $1,000,000,  and  was  placed  with  Thomas 
Dunlap,  president  of  the  United  States  Bank  of  Philadelphia.49 
By  agreement,  the  proceeds  of  this  loan  were  paid  in  monthly 
instalments  of  $100,000  each.  This  sum,  however,  was  not 
sufficient  to  meet  the  demands  on  the  canal  funds.  By  the  first 
of  May  the  monthly  expenditures  had  reached  the  neighborhood 
of  $150,000,  and  on  the  first  of  June  the  canal  funds  showed  a 
deficit  of  $208, ooo.50  To  meet  this  deficit  Governor  Carlin 
placed  $500,000  of  state  bonds  in  the  hands  of  General  W.  F. 
Thornton,  president  of  the  Board  of  Canal  Commissioners,  for 
sale  in  the  local  market.  Of  these  bonds,  General  Thornton 
sold  $100,000  in  Chicago  at  a  premium  of  1  per  cent.,  but  was 
unable  to  dispose  of  the  remainder  on  satisfactory  terms.51 
Arrangements  were  therefore  made  with  the  State  Bank  of 
Illinois  to  furnish  the  state  sufficient  funds,  supplementary  to 
the  instalments  from  the  United  States  Bank,  to  prevent  the 
necessity  of  curtailment  in  the  forces  on  the  canal  during  the 
remainder  of  the  year. 

The  most  pressing  and  immediate  needs  having  been  pro¬ 
vided  for,  Reynolds  and  Young  endeavored  to  float  the  re¬ 
mainder  of  the  authorized  loan  in  London,  but  the  condition  of 
the  money  market  made  it  impossible  to  sell  the  bonds  at  par.52 
After  considerable  negotiation,  they  placed  $1,000,000  of  ster¬ 
ling  bonds  drawing  6  per  cent,  interest,  with  the  brokerage  firm 
of  John  Wright  &  Co.  for  sale  at  a  minimum  of  91  per  cent, 
of  par  value,  and  with  the  understanding  that  these  bonds  should 

48  By  terms  of  the  contract,  $50,000  was  to  be  paid  within  fifteen  days  after 
the  delivery  of  the  bonds,  another  $50,000  on  August  1,  and  $50,000  on  the  first 
of  each  month  from  October  to  January  inclusive. 

49  Governor  Carlin’s  message,  December  10,  1839,  Illinois  House  Journal, 
Special  Session,  1839-40,  p.  19.  Also,  Carlin’s  letter  to  Ford  relative  to  the 
sale  of  bonds,  etc.,  Illinois  Senate  Reports,  1842-43,  p.  172. 

50  Governor  Carlin’s  message,  December  10,  1839. 

C1  Ibid.  52  Ibid. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


285 


be  replaced  by  others  of  like  amount  and  rate  but  bearing  interest 
payable  semi-annually  instead  of  annually  as  these  bonds  did.53 
On  this  deposit  of  bonds,  Wright  &  Co.  advanced  £30,000 
which,  by  the  terms  of  the  contract,  yielded  the  canal  funds 
$145, 1 88.54  The  firm,  however,  failed  before  the  delivery  of 
the  new  bonds,  and  no  further  funds  were  available  from  this 
source. 

At  the  beginning  of  the  year  1840  the  canal  treasury  was 
once  again  in  a  depleted  condition,  and  on  the  first  of  March 
the  commissioners  were  forced  to  the  expedient  of  issuing  to  the 
contractors  checks  bearing  6  per  cent,  interest  and  payable  at 
such  time  as  the  necessary  funds  should  be  provided.55  An 
effort  was  made  to  replenish  the  treasury  by  a  further  sale  of 
bonds,  and  in  order  to  increase  their  marketability  the  act  of 
February  1,  1840,  directed  the  commissioners  to  sell  enough 
lands  and  lots  to  pay  the  interest  on  the  canal  loans.  But  sales 
extending  over  a  period  from  June  30  to  July  13  yielded  only 
$7,387.06,  and  this  sum  was  principally  paid  in  canal  scrip.56 
Finding  it  impossible  to  continue  the  sale  without  such  a  reduc¬ 
tion  in  the  price  of  the  land  as  would,  in  their  judgment,  preju¬ 
dice  the  interests  of  the  state,  the  commissioners  abandoned  the 
effort  to  raise  funds  by  this  means.57  At  this  juncture  the  con¬ 
tractors  held  a  meeting  at  Lockport  and  proposed  to  take 
$1,000,000  of  the  authorized  bonds  at  par  and  bear  the  discount 
at  which  they  would  have  to  be  sold.5S  The  proposal  was 

63  Carlin’s  letter  to  Ford  relative  to  the  sale  of  bonds,  etc.,  Illinois  Senate 
Reports,  1842-43,  p.  172.  The  semi-annual  payment  of  interest  was  authorized 
by  the  act  of  February  1,  1840. 

54  Message  of  Governor  Carlin,  December  7,  1842. 

55  Seventh  Annual  Report  of  the  Canal  Commissioners,  p.  112. 

m  The  sales  amounted  to  $60,775.57,  but  by  the  provision  of  the  act  of 
February  1,  1840,  only  one-fourth  of  the  purchase  price  of  the  timber  land 
was  payable  in  cash  and  the  remainder  in  three  annual  instalments,  while  only 
one-tenth  of  the  price  of  the  prairie  land  was  payable  at  the  time  of  the 
purchase  and  the  remainder  in  twenty  years.  The  deferred  payments  drew 
interest  at  the  rate  of  6  per  cent. 

57  Fifth  Annual  Report  of  the  Canal  Commissioners,  p.  9. 

58  General  W.  F.  Thornton,  president  of  the  Board  of  Canal  Commissioners, 
and  W.  B.  Ogden  and  George  Barnett,  contractors,  were  appointed  a  special 
committee  to  carry  on  the  negotiations  with  Governor  Carlin. 


286 


JOURNAL  OF  POLITICAL  ECONOMY 


accepted  and  General  Thornton,  on  behalf  of  the  purchasers, 
sold  the  bonds  to  Magniac,  Smith  &  Co.  of  London,  at  a  dis¬ 
count  of  15  per  cent.59  This  act  of  the  contractors  made  it 
possible  to  continue  the  work  for  several  months  longer,  but 
with  a  somewhat  diminished  labor  force.60 

Although  the  canal  treasury  had  again  been  drained  of  its 
funds  by  March  1,  1841,  the  contractors  continued  their  work 
and  their  active  preparations  for  the  following  season  with  the 
apparent  hope  that  the  General  Assembly  would  be  able  suc¬ 
cessfully  to  solve  the  financial  problem  to  which  it  had  addressed 
itself  throughout  the  winter.  But  the  legislators  proved  unequal 
to  the  task.  The  large  sales  of  state  bonds  within  the  preceding 
decade  had  surfeited  a  depressed  market  with  that  particular 
kind  of  security.  This  fact  had  been  painfully  evident  for  the 
past  two  years.  It  was  likewise  true  that  Illinois  had  done  her 
part  in  bringing  about  this  condition  of  affairs.  In  addition  to 
the  canal  bonds  the  state  had  already  placed  upon  the  market, 
in  her  efforts  to  finance  an  elaborate  scheme  of  internal  improve¬ 
ments,  evidences  of  indebtedness  of  more  than  $5,6oo,ooo.61 
It  was  with  the  greatest  difficulty  that  the  state  was  able  to  pay 
the  interest  on  its  debts  on  January  1,  1841.  Under  such  cir¬ 
cumstances  a  new  loan  could  be  floated  only  at  an  enormous 
discount.  With  property  values  depressed  and  the  people  clam¬ 
oring  for  reduced  taxation,  the  General  Assembly  was  unable 
to'  do  more  than  to  provide  for  an  additional  tax  of  ten  cents 
on  the  $100  worth  of  property  to  be  set  apart  exclusively  as  an 
‘'interest  tax;”  establish  a  minimum  taxable  valuation  of  three 
dollars  an  acre  on  all  lands  subject  to  taxation  in  the  state;6'2  and 
authorize  the  sale  of  enough  bonds  at  whatever  they  would  bring 

59  Seventh  Annual  Report  of  the  Canal  Commissioners,  p.  113. 

60  The  amount  paid  for  work  in  1839  was  $1,479,907.58 ;  for  1840,  $1,117,- 
702.30 ;  and  for  1841,  $644,875.94.  Between  March  1  and  November  1,  1840, 
the  payments  were  $832,888.20,  and  between  November  1,  1840,  and  March  1, 
1841,  they  were  $280,940.46. — Seventh  Annual  Report  of  the  Canal  Commission¬ 
ers,  pp.  65,  113. 

61  On  December  7,  1842,  the  internal  improvement  debt  was  $5,614,196.94. 
As  work  on  these  improvements  had  been  stopped  in  1840,  the  debt  had  not 
increased  much  after  that  date. — Illinois  Senate  Reports,  1842-43,  p.  7. 

62  By  the  act  of  February  21,  1841. 


THE  ILLINOIS  AND  MICHIGAN  CANAL  287 

in  the  market  to  meet  the  interest  on  the  public  debt  for  the  next 
two  years.63 

The  failure  of  the  General  Assembly  to  provide  further 
means  for  the  maintenance  of  the  work  was  interpreted  as  the 
abandonment  of  the  canal  to  its  fate.  As  many  of  the  contract¬ 
ors  as  were  able  to  abandon  their  work  without  too  heavy  finan¬ 
cial  losses  did  so.  Others  continued  for  a  time,  but  reduced 
their  forces  as  rapidly  as  conditions  would  warrant.  There  were 
only  two  possible  sources  of  payment  to  the  contractors,  namely, 
state  bonds  and  warrants  drawn  against  a  future  canal  fund. 
Both  of  these  methods  were  resorted  to.  Such  contractors  as 
were  able  to  meet  their  own  expenses  and  wait  for  their  pay 
accepted  the  bonds  until  the  depreciation  became  so  great  as  to 
render  this  means  of  payment  impracticable.64  The  alternate 
method  of  payment  was  introduced  by  the  commissioners  Nin 
May,  1841,  in  order  to  relieve  the  embarrassments  of  those  con¬ 
tractors  whose  finances  did  not  enable  them  to  meet  their  accruing 
obligations.  To  the  extent  of  the  amount  due  them,  the  con¬ 
tractors  were  permitted  to  draw  orders  in  favor  of  their  creditors 
against  the  commissioners,  which  orders  became  negotiable  after 
having  been  formally  accepted  and  recorded  by  the  secretary  of 
the  board.65  For  a  time  these  orders  served  as  currency  along 
the  canal.  But,  although  receivable  in  payment  for  canal  lands 
at  the  sale  to  be  held  in  November,  1841,  the  issue  soon  exceeded 
the  demand  and  depreciation  began.  Naturally,  the  depreciation 
of  this  medium  of  exchange  soon  put  a  stop  to  that  method  of 
payment  and  all  work  on  the  canal  was  at  an  end  except  in  the 
case  of  a  few  contractors  who  were  willing  to  bear  their  own 
burdens  and  await  a  better  day  for  their  compensation.66 

63  In  order  to  raise  the  necessary  funds  to  pay  the  interest  on  the  state 
debt  July  1,  1841,  $804,000  in  interest-bearing  state  bonds  were  hypothecated 
with  Macallister  and  Stebbins  of  New  York  as  a  guarantee  of  a  loan  of  $321,600. 
From  this  time  on  no  more  interest  was  paid  on  the  state  debt  till  the  trustees 
took  charge  of  the  canal  in  1845. 

64  In  this  way  $197,000  was  paid  in  the  latter  part  of  1841  and  early  part  of 

1842. — Illinois  Senate  Reports,  1842—43,  pp.  16,  172. 

» 

85  Seventh  Annual  Report  of  the  Commissioners  of  the  Illinois  and  Michigan 
Canal,  p.  115. 

r*  ■* »  H* 

68  Illinois  Senate  Reports,  1842-43,  p.  16.  By  the  act  of  February  21,  1843, 


288 


JOURNAL  OF  POLITICAL  ECONOMY 


After  the  failure  of  the  State  Bank  in  February,  1842,  the 
financial  affairs  of  the  state  seemed  to  be  in  a  hopeless  condition. 
The  state  debt  was  nearing  the  $14,000,000  mark,  and  was  in¬ 
creasing  at  the  rate  of  $830,000  a  year  from  the  one  item  of 
accumulating  interest.67  The  credit  of  the  state  had  sunk 
so  low  that  in  June  its  obligations  sold  at  public  auction  in 
Chicago  at  from  eighteen  and  one-fourth  cents  to  twenty-four 
cents  on  the  dollar,  while  the  bills  of  the  defunct  State  Bank 
brought  thirty-eight  and  one-fourth  cents.68  There  were  not 
lacking  those  who  openly  advocated  a  policy  of  repudiation. 

In  this  crisis  the  canal  seemed  the  only  hope  of  the  state.69 
A  completed  canal  would  aid  the  state  finances  both  directly  and 
indirectly.  It  would  give  direct  aid  by  yielding  a  revenue  which 
would  offset  a  portion  of  the  interest  charges  which  the  state 
was  then  unable  to  meet.  Indirectly  it  would  bring  larger 
revenues  to  the  treasury  by  increasing  the  basis  of  taxation, 
first,  through  the  raising  of  property  values  by  the  capitalization 
of  the  diminution  in  transportation  charges;  and,  secondly,  by 
making  the  state  a  more  attractive  place  for  settlement  and  in¬ 
vestment  through  this  provision  for  lightening  its  financial 
burdens,  which  would  tend  to  draw  the  population  and  capital 
that  naturally  shun  a  debt-ridden  community  with  its  exorbitant 
taxes.  The  increased  land  values  resulting  from  the  opening 
of  the  canal  would  also  enable  the  state  materially  to  diminish 
the  burden  of  the  debt  by  liquidating  a  large  portion  of  it 
through  the  sale  of  canal  lands.  In  short,  the  difference  between 
a  completed  and  an  uncompleted  canal  meant  the  difference 
between  a  solvent  and  an  insolvent  state.  These  facts  were 

provision  was  made  for  the  payment  of  damages  sustained  by  the  suspension  of 
work,  and  by  the  act  of  March  3,  1843,  all  claims  against  the  canal  were  to  be 
investigated  and,  when  approved,  they  and  the  accrued  interest  should  be 
charged  against  the  fund  of  $230,000  appropriated  for  settlement  with  the 
contractors. 

67  On  December  1,  1842,  the  debt  amounted  to  $13,836,379.65,  and  the 
interest  for  the  year  was  $830,182.77. — Illinois  Senate  Reports ,  1842-43,  p.  7. 

68  Chicago  Democrat,  June  8,  1842. 

69  Report  of  the  Senate  Committee  on  Canal  and  Canal  Lands,  Illinois 
1 Senate  Reports,  1842-43,  pp.  90,  91  ;  also  Report  of  the  House  Committee  on 
Finance,  Illinois  House  Reports,  1842-43,  pp.  6,  7. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


289 


clearly  enough  perceived,70  and  there  was  no  lack  of  desire  on 
the  part  of  the  state  officials  to  bring  the  work  to  its  final  con¬ 
summation  ;  but  that  would  involve  an  additional  expenditure  of 
more  than  $3,000,000,  and  in  the  insolvent  condition  of  the  state 
the  raising  of  such  a  sum  was  clearly  impossible.71 

In  this  extremity  the  friends  of  the  canal  bethought  them 
of  the  old  “shallow  cut”  plan.  It  was  estimated  that  $1,600,000 
would  suffice  to  complete  the  work  on  this  plan,  and  it  was 
deemed  practicable  to  raise  this  sum  on  a  pledge  of  the  canal 
and  the  canal  lands  and  revenues.  The  principal  holders  of 
canal  bonds  in  New  York  also  looked  upon  the  plan  as  feasible.72 
Consequently,  by  the  act  of  February  21,  1843,  the  governor  was 
authorized  to  negotiate  a  loan  for  the  amount  and  to  secure  its 
payment  by  a  deed  of  trust.  The  canal  and  all  its  property  were 
to  be  turned  over  to  three  trustees,  two  of  whom  should  be  chosen 
by  the  subscribers  to  the  new  loan  and  one  appointed  by  the 
governor.  These  trustees  were  authorized  to  hold  and  manage 
rhe  canal  for  the  benefit  of  the  creditors,73  under  such  restric¬ 
tions  as  would  safeguard  the  interests  of  the  state.74 

Governor  Ford  appointed  Charles  Oakley  and  Michael  Ryan 

70  Illinois  Senate  Reports ,  1842-43,  pp.  90,  91. 

71  William  Gooding,  the  chief  engineer  of  the  canal,  estimated  that  the 
sum  of  $3,098,169.29  would  be  required  to  complete  the  work  on  the  plan  on 
which  it  was  being  constructed. — Seventh  Annual  Report  of  the  Canal  Com¬ 
missioners,  p.  66. 

72  Justus  Butterfield,  of  Chicago,  is  said  to  have  first  suggested  the  plan  to 
Arthur  Bronson,  of  New  York,  one  of  the  large  holders  of  canal  bonds. 
Whether  this  statement  be  true  or  not,  the  friends  of  the  canal  eagerly  took 
up  the  idea.  In  the  summer  of  1842  Michael  Ryan,  chairman  of  the  Committee 
on  Canal  and  Canal  Lands  in  the  Illinois  Senate,  visited  New  York  and  dis¬ 
cussed  the  plan  with  the  leading  bond-holders,  who  took  kindly  to  the  idea. 

73  In  the  interest  of  the  subscribers  to  the  new  loan  the  act  directed  the 
disbursement  of  the  income  of  the  canal,  after  the  payment  of  the  incidental 
expenses,  as  follows :  first,  interest  on  the  loan ;  secondly,  interest  on  other 
canal  bonds  held  by  subscribers  to  the  loan ;  thirdly,  interest  on  canal  bonds 
held  by  non-subscribing  bond-holders ;  and  fourthly,  payment  of  the  principal 
of  the  loan. 

74  Among  the  important  provisions  of  the  act  safeguarding  the  interests  of 
the  state  were  those  limiting  the  conditions  of  the  sale  or  lease  of  the  lands, 
lots,  and  water  power  of  the  canal.  For  the  provisions  of  the  act  in  full,  see 
The  Laws  of  Illinois,  1834,  pp.  54-61. 


290 


JOURNAL  OF  POLITICAL  ECONOMY 


as  agents  to  negotiate  the  new  loan.  Having  first  received 
assurances  that  the  American  creditors  would  subscribe  their 
proportion,  Oakley  and  Ryan  hastened  to  Europe ;  but  the 
foreign  creditors  were  less  inclined  to  take  a  favorable  view 
of  the  proposed  loan  than  those  in  America  had  been.75  How¬ 
ever,  it  was  finally  arranged  that  Abbott  Lawrence,  Thomas  H. 
Ward,  and  William  Sturgis,  of  Boston,  should  designate  two 
competent  men  to  examine  the  conditions  of  the  work  and  report 
to  the  creditors  the  value  of  the  property  and  the  amount  of  debt, 
including  accrued  interest,  charged  against  it.  This  service  was 
performed  by  ex-Governor  John  Davis,  of  Massachusetts,  and 
Captain  William  H.  Swift,  of  the  engineering  corps  of  the 
United  States  Army.  During  the  winter  of  1843-44  these  men 
made  a  personal  investigation  of  the  condition  and  the  possi¬ 
bilities  of  the  canal.76  Their  report  to  the  creditors,  dated  March 
1,  1844,  was  entirely  confirmatory  of  the  reports  of  Ryan  and 
Oakley.  They  found  that  on  January  1,  1844,  the  total  canal 
debt  was  $5,39°^97-57-  Offsetting  against  this  debt  the  sum  of 
$150,209.83  redeemed  and  in  the  contingent  fund,  and  $39.3,- 
034.91  of  securities  held  against  canal  lands  sold,  the  net  debt 
was  found  to  be  $4, 847, 402. 83. 77  On  the  side  of  assets  the  state 
could  offer  besides  the  canal  230,476  acres  of  land  which  Davis 
and  Swift  estimated  would  be  worth  ten  dollars  an  acre  at  the 
completion  of  the  canal,  and  3,49!  lots  in  the  cities  and  towns 
of  Chicago,  Lockport,  Ottawa,  and  La  Salle,  valued  at  $1,900,- 
000.  The  canal  itself  was  considered  to  be  worth  $5,000,000. 
In  addition  to  this  $9,204,670  of  physical  property,  it  was  esti¬ 
mated  that  the  rentals  for  water  power  would  aggregate  from 
$75,000  to  $100,000  a  year,  and  that  the  tolls  for  the  second 

75  The  attitude  of  the  European  creditors  in  1843  was  fully  set  forth  in  a 
letter  of  Baring  Brothers  &  Co.  to  Charles  Oakley,  October  18,  1844,  which 
was  later  published  in  the  Illinois  and  Michigan  Canal  Documents,  pp.  24-29. 
Also  in  a  letter  of  Charles  Oakley  to  J.  S.  Zieber,  dated  at  London,  July  18, 
1843,  and  published  in  the  Chicago  Democrat,  August  23,  1843. 

76  Illinois  House  Reports,  1845,  p.  315. 

77  Davis  and  Swift’s  Report  of  the  Illinois  and  Michigan  Canal,  1844,  pp. 
13,  14.  There  are  some  slight  discrepancies  in  the  figures  in  the  report,  but 
they  seem  to  be  due  to  either  clerical  or  typographical  errors  and  do  not  affect 
its  importance  materially. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


291 


year  of  the  operation  of  the  canal  would  reach  $363, 865. 25. 78 
In  view  of  these  facts  the  report  recommended  the  acceptance 
of  the  loan  as  an  entirely  safe  financial  proposition. 

The  experience  of  European  holders  of  American  internal 
improvement  bonds,  however,  had  not  been  a  pleasant  one.  For 
the  most  part  they  had  been  unable  to  get  interest  on  their  bonds, 
and  these  were  consequently  greatly  depreciated  in  value.  But 
the  holders  of  Illinois  and  Michigan  canal  bonds  were  reassured 
by  the  correspondence  of  the  report  with  the  assertion  of  Ryan 
and  Oakley  and  more  particularly  by  the  personal  statements 
of  ex-Governor  Davis  who  visited  London  in  the  summer  of 
,844  on  invitation  of  Baring  Brothers  &  Co.  and  Magniac,  Jar- 
dine  &  Co.,  representing  the  creditors.  As  a  result  of  the 
report  and  of  these  conferences,  the  European  creditors  agreed 
to  take  the  full  amount  of  the  new  bond  issue  apportioned  to 
them  on  the  basis  of  their  holdings  of  the  earlier  issues,79  pro¬ 
vided  the  state  would  restore  the  interest  tax  which  had  been 
repealed  in  1843. 80  The  state  readily  complied  with  this  very 
reasonable  condition.81  By  the  act  of  March  1,  1845,  provision 
was  made  for  an  interest  tax  of  one  and  one-half  mills  on  each 
dollar  of  property  values. 

In  the  meantime  the  creditors  had  subscribed  the  remainder 
of  the  loan  and  elected  Captain  Swift,  of  Washington,  and  David 
Leavitt,  of  New  York,  as  trustees;  and  the  governor  had 

78  Davis  and  Swift’s  Report  of  the  Illinois  and  Michigan  Canal,  1844,  P*  42* 
This  estimate  of  the  earning  capacity  of  the  canal  was  far  too  high,  as  shown 
by  the  earnings  when  completed.  The  tolls  for  the  second  year  of  operation 
were  $118,375. 

78  It  was  expected  that  the  holders  of  earlier  issues  would  subscribe  to  this 
one  to  the  extent  of  32  per  cent,  of  their  holdings.  This  would  enable  them  to 
register  their  old  bonds  under  the  act  of  February  21,  1843,  thereby  making 
them  a  sort  of  second  mortgage  on  the  canal  and  its  property  and  revenues. 

80  Illinois  Senate  Reports,  1844,  pp.  89^96. 

81  That  the  land  owners  were  not  all  averse  to  such  a  tax  is  shown  by  the 
fact  that  on  January  18,  1844,  John  Wentworth  sent  from  Washington  to  the 
governor  of  Illinois  a  petition  from  holders  of  Illinois  land  to  the  amount  of 
nearly  $1,000,000  asking  that  the  property  in  the  state  be  taxed  to  raise  funds 
to  pay  the  interest  on  the  state  debt,  reasoning  that  an  improvement  in  the 
financial  condition  of  the  state  would  react  on  property  values. — Wentworth’s 
letter  in  the  Chicago  Democrat,  January  31,  1844. 


2  92 


JOURNAL  OF  POLITICAL  ECONOMY 


appointed  General  Jacob  Fry  as  the  state  member.  In  June  these 
trustees  assumed  the  trust  and  began  active  preparations  for 
resuming  the  work  on  the  canal.  On  June  21  they  called  for  the 
first  instalment  of  the  new  loan  to  be  paid  on  September  20  fol¬ 
lowing.82 

While  the  arrival  of  the  funds  was  awaited,  the  neces¬ 
sary  preparations  for  the  resumption  of  work  were  under 
way.  In  accordance  with  estimates  submitted  by  Charles 
B.  Fisk  and  William  Gooding,  the  former  contractors  were 
allotted  the  work  on  their  old  sections,83  July  22,  and  on  August 
18  those  sections  not  pre-empted  by  the  former  contractors  were 
let  to  the  “lowest  responsible  bidder.”84  These  contracts  evi¬ 
denced  the  change  in  the  economic  condition  of  the  region  since 
1836.  In  that  year  the  country  generally  was  on  the  crest  of  the 
wave  of  prosperity.  High  prices  prevailed.  This  condition  was 
magnified  in  the  region  of  the  canal  with  its  suddenly  acquired 
population  and  its  undeveloped  resources,  and  the  necessity  of 
importing  all  needed  supplies.  In  1845  the  country  was  slowly 
recovering  from  a  period  of  industrial  depression.  Prices  were 
relatively  low.  Food  supplies  were  particularly  cheap  in  the 
region  of  the  canal,  where  they  were  now  produced  in  abun¬ 
dance.85  As  a  consequence,  although  the  new  estimates  were  far 

83  Captain  Swift’s  Report  to  the  Creditors ,  1849,  p.  5.  Also,  the  Chicago 
Democrat,  June  25,  1845. 

83  Section  seventeen  of  the  act  of  February  21,  1843,  provided  that  on 
resumption  of  work  on  the  canal  former  contractors  should  have  priority  of 
right  in  securing  the  contracts  on  their  old  sections,  but  on  an  estimate  to  be 
made  by  the  chief  engineer  of  the  Board  of  Trustees. 

81 Report  of  the  Canal  Trustees,  1845,  p.  3. 


86  The  following  comparison  of  prices  was  made  by  Davig  and  Swift  during 
their  investigation  of  the  canal : 


Cost  in  1836 

Cost  in  1843 

Labor  of  man  per  month  (average)  . 

$  40.00 

IOO . OO 

$16.00 

60  OO 

Hrvrsps  each . 

Oypti,  per  yoke . 

80 . 00 

45.00 

7.  OO 

Beef,  per  cwt . 

6.00 

Flour,  per  barrel . 

II  .OO 

3-5° 

8.00 

Pork  per  barrel  . 

22.00 

Other  articles  had  been  proportionately  reduced  in  price. — Report  of  the  Illinois 
and  Michigan  Canal,  1844,  p.  103. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


293 


below  the  earlier  ones,  the  trustees  experienced  no  difficulty  in 
finding  contractors  who  would  undertake  the  work  at  less  than 
the  estimated  cost  of  completing  it.86 

After  the  period  of  abandonment,  with  the  consequent  dete¬ 
rioration  of  the  unfinished  work,  considerable  time  was  con¬ 
sumed  in  general  repairs  and  preparation  for  the  resumption  of 
the  actual  work  of  construction.87  The  act  of  February  21, 
1843,  required  the  completion  of  the  canal  within  three  years 
after  it  should  be  turned  over  to  the  trustees.  In  spite  of  delays 
caused  by  floods  and  by  an  unusual  amount  of  sickness  among 
the  laborers,  the  work  was  completed  in  the  allotted  time  and 
was  opened  for  navigation  in  April,  1848. 

For  the  next  twenty-three  years  the  efforts  of  the  trustees 
were  devoted  to  building  up  the  traffic  of  the  canal  and  to  the 
payment  of  the  canal  debt.  The  expenditures  on  the  work  before 
it  passed  into  the  hands  of  the  trustees  amounted  to  $5,039,- 
248.04,  of  which  $4,674,637.23  had  been  paid  for  construction 
and  $364,610.81  for  contingent  expenses.88  The  trustees  ex¬ 
pended  $1,429,606.21  in  completing  the  canal  and  constructing 
feeders  to  furnish  the  water  supply,  rendered  necessary  by  the 
adoption  of  the  “shallow  cut  plan”  which  raised  the  canal  on 
the  Summit  level  twelve  feet  above  the  datum  line  of  Lake 
Michigan.89  But  these  sums  did  not  comprehend  the  entire 
canal  debt.90  Aside  from  the  outstanding  bonds  to  the  amount 
of  $5,383,000,  the  debt  was  composed  of  interest-bearing  canal 
scrip,  non-interest-bearing  canal  scrip,  ninety-day  circulating 
checks,  balances  due  to  contractors,  damages  awarded  for  in- 

86  Portions  of  the  work  estimated  at  $171,700  were  let  for  $148,100,  and 
feeder  contracts  estimated  at  $141,500  were  let  for  $133,200. — Report  of  the 
Canal  Trustees,  1847,  P*  26. 

87  Report  of  the  Canal  Trustees,  184 7,  p.  26. 

88  Eighth  Annual  Report  of  the  Acting  Commissioner  of  the  Illinois  and 
Michigan  Canal,  p.  3.  Cf.  Report  of  the  Secretary  of  War,  1887,  Vol.  II,  Part 
3,  pp.  2146-48,  which  gives  the  expenditures  by  the  commissioners  as  $5,133,- 
062.21  and  by  the  trustees  as  $1,424,619.29. 

83  Three  feeders  were  constructed:  (1)  from  the  Fox  River  at  Dayton  to 
Ottawa;  (2)  from  the  Kankakee  River  to  the  Dresden  level;  (3)  from  the 
Calumet  River  through  the  “Sag”  to  the  Summit  level. 

00  Final  Report  of  the  Trustees,  1871,  p.  9. 


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JOURNAL  OF  POLITICAL  ECONOMY 


juries  sustained  by  the  canal’s  crossing  private  property,  and 
accumulated  interest.91 

The  funds  with  which  to  meet  the  accruing  interest  on  this 
debt  and  with  which  ultimately  to  liquidate  the  debt  itself  were 
gradually  accumulated  from  the  sales  of  lands,  from  tolls  derived 
from  the  operation  of  the  canal,  from  rents  of  lands  and  water 
power,  from  interest  on  the  canal  funds  when  deposited  with  the 
banks,  from  interest  on  the  unpaid  instalments  on  the  lands  sold, 
and  from  a  few  minor  sources.92 

The  burden  of  the  liquidation  of  the  debt  was  increased, 
first,  by  the  length  of  time  which  elapsed  between  the  beginning 
of  the  work  and  the  final  payment  of  the  bonds  and  accounts. 
The  trustees  paid  $2,155,622.38  in  the  discharge  of  the  arrears 
of  interest  on  the  registered  bonds,  and  $2,457,276.46  may  be 
charged  to  the  operating  expenses  of  the  canal  while  used  as  a 
fiscal  agent  for  the  payment  of  the  debt.93  Secondly,  the  burden 
of  the  debt  was  increased  by  the  monetary  and  banking  conditions 
prevailing  in  the  country  during  the  period  of  the  trust.  Between 
T848  and  1863,  $14,563.52  was  lost  through  “wild-cat  currency,” 
counterfeit  bills,  and  bank  failures,  and  between  the  former  year 
and  1871  the  sum  of  $370,864.42  was  expended  for  premiums 
on  gold  with  which  to  pay  the  interest  and  principal  of  canal 
bonds  held  abroad.94 

By  the  close  of  April,  1871,  the  entire  debt  had  been  liqui¬ 
dated  except  $13,000  of  the  bonds  which  their  holders  had  failed 

91  Eighth  Annual  Report  of  the  Acting  Commissioner  of  the  Illinois  and 
Michigan  Canal ,  pp.  7,  8. 

92  Some  of  these  minor  sources  of  income  were  the  sale  of  wood,  timber,  and 
stone,  the  sale  of  old  machinery  and  implements  which  the  state  acquired  when  it 
settled  with  contractors  who  were  forced  to  abandon  their  work  in  1842-43,  the 
lease  of  lots,  and  the  advantages  occasionally  derived  from  the  course  of 
exchange. 

93  Final  Report  of  the  Canal  Trustees,  1871,  p.  9. 

91  Prior  to  1863  payments  on  bonds  held  in  London  had  been  made  in  New 
York  at  the  rate  of  exchange  at  which  the  best  bankers’  bills  on  London  could 
be  purchased  on  the  day  of  payment.  This  method  sufficed  so  long  as  gold  and 
paper  had  the  same  value  in  the  money  market.  When  the  difference  between 
them  became  material,  payments  were  made  in  coin. — Swift’s  Report  to  the 
Creditors,  1865,  p.  7. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


295 


to  present  for  payment.95  On  April  30,  the  trustees  rendered 
their  final  report  and  the  trust  was  dissolved,  at  which  time  they 
turned  over  to  the  state  a  cash  balance  of  $95, 742. 41. 96  In  the 
main,  the  finances  had  been  well  managed  during  the  continu¬ 
ance  of  the  trust.  There  had  passed  $11,009,507.41  through  the 
hands  of  the  trustees  with  no  greater  loss  than  the  $14,563.52 
which  was  lost  through  bad  currency  and  banking  conditions. 
On  the  other  hand,  the  funds  had  been  so  managed  as  to  yield 
$183,303.97  from  interest  and  exchange. 

In  the  end  it  was  found  that  the  anticipation  with  which  the 
work  was  undertaken,  namely,  that  the  canal  lands  and  revenues 
would  pay  the  cost  of  construction,  had  been  well  founded. 
However,  because  of  the  length  of  the  period  covered  by  the 
work  of  construction  and  of  the  acquisition  of  the  funds  neces¬ 
sary  to  defray  the  expenses  incident  to  the  construction  and  the 
cost  of  management  and  maintenance,  the  total  expenditures  had 
been  increased  far  beyond  the  expected  sum. 

J.  W.  Putnam 

The  University  of  Missouri 

95  These  bonds  are  still  outstanding  and  are  carried  in  the  auditors’  accounts 
as  “called  in  by  the  governor’s  proclamation  and  not  surrendered.” — Illinois 
Auditor’s  Report,  1906,  p.  vii. 

90  Final  Report  of  the  Canal  Trustees,  1871,  p.  9. 


EDMUND  J. 


THE  JOURNAL 

OF 

POLITICAL  ECONOMY 


Volume  17  JUNE — IQOQ  Number  6 


AN  ECONOMIC  HISTORY  OF  THE  ILLINOIS  AND 

MICHIGAN  CANAL.  II 

III 

ORGANIZATION  AND  MANAGEMENT 

The  administrative  organization  for  the  management  of  the 
affairs  of  the  canal  has  always  been  simple  and  in  keeping  with 
the  organization  and  methods  employed  in  the  management  of 
other  state  enterprises  in  Illinois.  With  a  single  brief  exception, 
the  direct  management  has  been  in  the  hands  of  a  commission 
or  board.1  That  exception  was  during  the  suspension  of  work 
on  the  canal  between  1843  and  the  beginning  of  the  trust  in 
June,  1845.  The  management  was  then  in  the  hands  of  one  of 
the  commissioners,  known  as  the  acting  commissioner,  assisted 
by  the  secretary,  an  engineer,  and  an  agent  for  the  protection  of 
the  canal  lands  and  other  property.2  Previous  to  this  arrange¬ 
ment  the  board  of  commissioners  had  usually  consisted  of  three 


1  This  statement  ignores  the  period  from  the  abolition  of  the  board  of 
commissioners  by  the  act  of  March  1,  1833,  till  the  creation  of  a  new  com¬ 
mission  by  the  act  of  February  10,  1835,  during  which  time  there  was  no  admin¬ 
istrative  machinery  for  the  management  of  canal  affairs.  During  this  period 
the  project  was  temporarily  abandoned. 

2  The  act  of  March  2,  1843,  provided  for  the  discharge  of  all  officers  and 
employees  except  these  three.  These  were  authorized  to  settle  with  the  con¬ 
tractors,  in  so  far  as  they  could  obtain  the  necessary  funds,  and  to  protect  the 
canal  property.  Vide  Laws  of  Illinois,  1843,  p.  62. 


337 


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JOURNAL  OF  POLITICAL  ECONOMY 


men,3  chosen  biennially,  a  part  of  the  time  by  the  governor  with 
the  ratification  of  the  Senate  and  a  part  of  the  time  by  the  joint 
action  of  the  two  houses  of  the  General  Assembly.4  During  the 
continuance  of  the  trust,  the  board  of  trustees  consisted  of  two 
members  elected  biennially  by  the  canal  creditors  and  a  third 
appointed  by  the  governor.5  Since  the  termination  of  the  trust, 
in  1871,  the  three  commissioners  have  been  appointed  by  the 
governor  with  the  ratification  of  the  Senate.  The  result  has  been 
that  the  appointments  have  usually  been  determined  by  party 
service  or  political  expediency  rather  than  by  any  special  qualifi¬ 
cations  for  the  management  of  the  canal.  In  politics  and  in  law 
the  commissioners  are  regarded  'as  part  of  the  state  administra¬ 
tion.6 

From  time  to  time  special  appointments  have  been  made  for 
special  services,  independent  of  the  board  of  commissioners.7 
The  most  important  of  these  special  services  was  that  of  the  sale 
of  canal  bonds  during  the  period  of  construction.  These  sales 
were  always  conducted  by  the  governor  or  by  special  agents 
appointed  by  him.  The  boards  of  appraisers,  which  determined 
the  minimum  selling  price  of  each  lot  or  tract  of  land,  were 
appointed  by  the  judge  of  the  circuit  court  within  whose  juris¬ 
diction  the  lot  or  tract  lay.  In  addition  to  these,  it  was  a  common 
occurrence  for  the  General  Assembly  to  appoint  special  com¬ 
missions  to  investigate  claims  against  the  state,  growing  out  of 

3  By  the  act  of  February  14,  1823,  the  number  was  established  at  five.  The 
act  of  January  22,  1829,  reduced  it  to  three.  The  act  of  February  10,  1835, 
again  provided  for  a  board  of  five;  but  that  of  March  2,  1837,  once  more  fixed 
the  number  at  three,  and  it  has  thus  remained. 

4  The  first  members  of  the  first  board  in  1823  were  named  in  the  act  by 
which  it  was  created.  The  act  of  March  2,  1837,  placed  the  election  of  the  com¬ 

missioners  in  the  hands  of  the  General  Assembly. 

6  The  trustees  who  received  the  deed  of  trust  were  Captain  William  H. 
Swift  of  Washington  and  David  Leavitt  of  New  York,  elected  by  the  creditors 
at  New  York,  May  27,  1845;  and  Jacob  Fry,  appointed  by  the  governor  of 
Illinois,  June  10,  1845. 

6  The  legal  status  of  the  commissioners  is  determined  by  chap.  19,  sec.  3, 
of  the  Revised  Statutes  of  Illinois. 


7  Laws  of  Illinois,  1847,  p.  23. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


339 


the  construction  or  management  of  the  canal,  and  for  other 
specific  services.8 

The  subordinate  officials  and  employees  of  the  canal  have 
usually  been  appointed  by  the  board  or  subject  to  its  approval.9 
During  the  development  of  the  project  the  offices  of  secretary 
and  treasurer  were  filled  by  members  of  the  board;  and  since 
1873  the  same  policy  has  been  pursued.  But  from  1837  to  1873 
these  officials  were  appointed  by  the  board  from  outside  its  mem¬ 
bership.  Recently,  the  employees  of  the  board  have  been  the 
general  superintendent,  the  chief  clerk  and  paymaster,  the  land 
agent,  the  attorney,  and  a  force  of  about  twenty-five  clerks, 
collectors  of  tolls,  lock  tenders,  and  repair  men.10 

The  functions  of  the  board  have  varied  with  the  changing 
phases  of  the  canal  history.  In  the  main,  however,  they  have 
been  rather  narrowly  restricted  by  legislative  action.  The 
General  Assembly  has  not  only  assumed  control  of  the  general 
policy  of  the  management,  but  formerly  it  also  frequently,  by 
legislative  enactment,  directed  the  action  of  the  board  in  specific 
cases.  But  in  strictly  administrative  matters  the  board  has 
usually  been  permitted  to  exercise  discretionary  powers.  This 
has  been  particularly  true  in  recent  years.  Within  the  restric¬ 
tions  imposed  by  the  General  Assembly,  the  board  has  managed 
the  contracts  for  construction  and  repairs;  the  canal  finances 
other  than  the  bond  sales;  the  sales  and  leases  of  canal  lands  and 
water  power.  It  has  fixed  the  rate  of  tolls  and  the  condition 
under  which  the  canal  may  be  used,  and  has  had  general  charge 
of  the  canal  interests. 

In  the  contracts  for  construction  due  provision  was  made  for 
the  protection  of  the  interests  of  the  state.  The  contracts  were 
let  to  the  lowest  responsible  bidder  only  after  the  conditions 

8  As  an  example  of  such  appointments  may  be  mentioned  the  two  agents 
appointed  by  joint  vote  of  the  General  Assembly  to  protect  the  canal  lands 
from  trespass  and  to  grant  permits  for  residence  on  canal  lands.  Vide  Laws 
of  Illinois,  1837,  pp.  44-48,  and  ibid.,  1852,  p.  152. 

9  Public  Laws  of  Illinois,  1871-72,  p.  213 ;  Laws  of  Illinois,  1891,  p.  71  ; 
ibid.,  1899,  p.  82,  and  others. 

10  A  list  of  the  employees,  together  with  the  compensation  of  each,  is  given 
in  the  appendix  to  each  annual  report  of  the  canal  commissioners. 


340 


JOURNAL  OF  POLITICAL  ECONOMY 


under  which  they  were  to  be  performed  had  been  widely  adver¬ 
tised  both  in  Illinois  and  in  the  eastern  states,  in  order  to  secure 
the  widest  possible  competition  among  contractors.11  In  the 
earlier  of  these  contracts  the  contractors  were  required  to  give 
bond  for  the  specific  performance  of  their  agreements.  Later, 
the  bond  was  not  required,  but  15  per  cent,  of  the  amount  due 
the  contractors  for  work  done  was  withheld  till  the  completion  of 
the  work  in  accordance  with  the  specifications  in  the  contract.12 
Although  several  of  the  contractors  lost  heavily  and  some  of 
them  were  compelled  to  relinquish  their  contracts,  the  amounts 
forfeited  by  such  relinquishments  usually  reimbursed  the  state 
for  the  extra  expense  entailed  by  the  necessity  of  making  a  new 
contract,  frequently  at  a  higher  figure. 

The  financial  management  of  the  canal  has  generally  been 
honest  and  reasonably  efficient;  but  it  has  not  always  been  above 
criticism  from  the  standpoint  of  policy  adopted  or  methods  used. 
During  the  period  of  construction,  the  ever-present  financial 
problem  led  to  the  trial  of  unsound  financial  expedients,  some  of 
which  have  been  discussed  in  the  preceding  article.  The  responsi¬ 
bility  for  these  expedients  rests  partly  with  the  board  and  partly 
with  the  General  Assembly.  The  issuance  of  canal  scrip  is  a 
case  in  point.  As  is  usual  in  such  cases,  the  scrip  was  over¬ 
issued  and  consequently  suffered  a  heavy  depreciation,  casting 
an  undue  burden  upon  the  men  least  able  to  bear  it,  namely,  the 
laborers.13  The  General  Assembly  which  authorized  such  a 
course  was  not  blameless,  but  the  administration  of  the  act  lay 
with  the  commissioners.  The  act  was  rather  permissive  than 
mandatory  and  the  amount  of  the  issue  was  entirely  within 
their  control.  It  may  be  urged,  however,  in  extenuation  of  the 
policy,  that  no  other  means  was  available  at  the  time  for  continu¬ 
ing  the  work  on  the  canal;  and  that  a  suspension  of  operations 

11  Laws  of  Illinois,  1835,  P*  226;  and  Report  of  the  canal  trustees,  1846,  p.  3. 

12  Report  of  canal  commissioners,  1836,  p.  11. 

13  The  contractors  were  paid  in  scrip,  but  they  were  able  to  pass  it  on  to 
the  laborers  in  payment  of  wages.  The  laborers  either  used  it  in  making  pur¬ 
chases  of  necessaries  of  life,  the  price  of  which  was  raised  to  cover  the  deprecia¬ 
tion  of  the  scrip,  or  sold  it  to  speculators  for  cash  at  a  discount.  In  either 
case,  the  laborer  bore  the  chief  part  of  the  burden  of  depreciation. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


341 


would  have  been  much  more  disastrous  to  the  contractors,  and 
certainly  to  all  the  laborers  who  could  not  readily  find  work  else¬ 
where,  than  the  depreciation  of  the  scrip  proved  to  be.  Be  that 
as  it  may,  the  inevitable  result  of  the  policy  adopted  was  the 
practical  reduction  of  the  wages  of  the  laborers  and  the  develop¬ 
ment  of  a  class  of  land  speculators  at  the  expense  of  the  laboring 
men,  who  were  forced  by  the  necessities  of  life  to  cash  their  scrip 
for  whatever  it  would  bring.  Men  with  ready  money  were  en¬ 
abled  to  purchase  scrip  at  a  heavy  discount  and  use  it  in  payment 
for  canal  lots  or  lands  at  face  value. 

If  the  board  was  led  to  dangerous  lengths  in  the  issue  of  canal 
scrip,  it  showed  greater  conservatism  than  its  legislative  master 
in  meeting  the  problem  of  “wild-cat”  money.  During  the  sus¬ 
pension  of  specie  payments  following  the  panic  of  1837,  and  again 
during  the  Civil  War,  the  canal  revenues  suffered  much  from 
the  receipt  of  “uncurrent”  money.14  The  act  of  July  21,  1837, 
required  the  canal  commissioners  to  accept,  in  payment  of  bills 
to  the  canal,  the  notes  of  either  the  State  Bank  of  Illinois  or  the 
Bank  of  Illinois,  or  those  of  any  other  bank  whose  notes  were 
accepted  and  credited  as  cash  by  the  bank  where  the  canal  funds 
were  kept.  While  the  losses  to  the  canal  from  this  source  were 
probably  proportionately  no  heavier  than  those  of  the  average 
business  firm,  they  became  of  considerable  importance.15  To 
relieve  the  treasury  as  much  as  possible  from  this  evil,  the 
trustees  ordered  that  “specie  funds  only,  or  the  equivalent 
thereof”  should  be  received  in  payment  of  tolls.16  The  natural 
result  was  a  nominal  increase  of  earnings  which  practically  offset 
the  losses  from  the  necessary  acceptance  of  depreciated  money. 
From  i860  to  1862  the  tolls  increased  95.34  per  cent.,  while  the 
traffic  for  the  same  period  increased  83.32  per  cent.17  The  estab- 

14  Report  of  the  canal  trustees,  1862,  pp.  5,  6. 

15  The  actual  loss  sustained  during  the  year  1861,  in  the  conversion  of  notes 
into  specie  values,  was  $2,225.53,  but  the  board  held  deposits  of  canal  funds  to 
the  amount  of  $32,605.40  on  which  it  estimated  there  would  be  an  average  loss 
of  50  per  cent.  Report  of  the  Trustees  of  the  Illinois  and  Michigan  Canal, 
1862,  p.  5. 

10  The  resolution  was  adopted  May  27,  1861. 

17  The  statistics  from  which  these  percentages  have  been  derived  may  be 
found  in  the  appendix  to  any  recent  report  of  the  canal  commissioners. 


342 


JOURNAL  OF  POLITICAL  ECONOMY 


lishment  of  the  national  banking  system  and  the  enforced  retire¬ 
ment  of  the  circulation  of  all  other  banks  effectually  removed  the 
danger  of  losses  from  “uncurrent”  money. 

When  the  board  of  trustees  made  its  final  report  on  April  30, 
1871,  and  turned  the  canal  and  its  property  back  to  the  state,  the 
financial  sky  seemed  to  be  entirely  clear.  The  canal  debts  were 
fully  paid  and  a  surplus  of  $95,742.41  was  turned  into  the  state 
treasury.  This  sum  was  regarded  as  but  an  earnest  of  the 
revenues  to  be  derived  from  the  operation  of  the  canal.  The 
problem  of  financial  management  for  the  future  was  assumed  to 
be  the  simple  one  of  collecting  the  revenues,  paying  the  expenses 
of  operation  and  repairs,  and  turning  over  the  surplus  to  the 
treasury  of  the  state.  As  the  revenue  for  the  preceding  ten 
years  had  exceeded  the  gross  expenditures  for  the  same  period 
by  $1,244, 048, 18  such  an  assumption  seemed  well  founded.  The 
history  of  the  succeeding  years,  however,  did  not  give  so  much 
cause  for  optimism.  In  the  next  decade,  the  tolls  exceeded  the 
expenditures  by  only  $320,199  and  the  following  decade  showed 
a  deficit  of  $211,039.  In  fact,  the  expenditures  have  exceeded 
the  tolls  regularly  since  1879.  During  all  these  years,  up  to  1903, 
the  General  Assembly  made  biennial  appropriations  from  the 
state  treasury  to  cover  the  deficits,  under  the  guise  of  appropria¬ 
tions  for  the  improvement  of  navigation.  In  1903,  it  appropri¬ 
ated  $152,950  to  make  needed  repairs  and  to  maintain  the  canal 
in  navigable  condition  for  the  next  biennium.19  In  the  circuit 
court  of  Sangamon  County,  Richard  E.  Burke  sought  an  in¬ 
junction  restraining  the  commissioners  from  using  the  appropria¬ 
tion,  on  the  ground  that  it  had  been  made  in  violation  of  the 
following  provision  of  the  constitution  of  1870:  “The  general 
assembly  shall  never  loan  the  credit  of  the  state,  or  make  appro¬ 
priations  from  the  treasury  thereof,  in  aid  of  railroads  or  canals : 
Provided,  that  any  surplus  earnings  of  any  canal  may  be  appropri- 

18  This  sum  does  not  include  a  small  annual  income  from  rentals,  the  amount 
of  which  is  not  obtainable. 

19  The  appropriation  was  made  up  of  three  items:  $50,000  a  year  for  the 
biennium  for  maintenance  of  the  canal  in  navigable  condition;  $42,950  for  the 
maintenance  and  operation  of  the  pumping  station  at  Bridgeport;  and  $10,000 
for  dredging  the  steamboat  channel  and  basin  at  La  Salle. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


343 


ated  for  its  enlargement  or  extension.”20  The  case  was  carried 
to  the  Supreme  Court  of  Illinois,  which  held  the  appropriation 
violative  of  the  above  constitutional  provision  and  therefore  il¬ 
legal.21  Since  then  the  commissioners  have  been  compelled  to 
maintain  the  canal  by  such  expedients  as  have  been  at  their  dis¬ 
posal  from  year  to  year.  To  supplement  the  small  earnings, 
tracts  of  real  estate  have  been  sold  from  time  to  time  and  por¬ 
tions  of  the  expenses  formerly  charged  against  the  canal  funds 
are  now  charged  against  the  appropriations  for  the  improvement 
of  the  Illinois  River  channel.22  By  these  expedients  the  canal 
has  been  maintained  during  the  last  five  years.  The  lack  of 
funds,  however,  has  prevented  the  commissioners  from  making 
the  necessary  repairs,  and  the  efficiency  of  the  canal  as  a  trans¬ 
portation  route  has  suffered  accordingly.  In  fact,  much  of  the 
time,  portions  of  the  canal  have  been  practically  unnavigable  for 
boats  with  anything  like  a  standard  load.23 

Nearly  allied  to  the  financial  administration  is  the  policy 
pursued  in  relation  to  the  canal  lands  and  water  power.  It  has 
never  been  the  policy  of  the  state  to  retain  permanently  the  owner¬ 
ship  of  any  considerable  portion  of  the  290,915  acres  granted  to 
it,  aside  from  the  ninety-foot  strip  on  each  side  of  the  canal.  The 

20  The  entire  section  is  as  follows :  “The  Illinois  and  Michigan  Canal  shall 
never  be  sold  or  leased  until  the  specific  proposition  for  the  sale  or  lease  thereof 
shall  first  have  been  submitted  to  a  vote  of  the  people  of  the  state  at  a  general 
election,  and  have  been  approved  by  a  majority  of  all  the  votes  polled  at  such 
election.  The  general  assembly  shall  never  loan  the  credit  of  the  state,  or  make 
appropriations  from  the  treasury  thereof,  in  aid  of  railroads  or  canals :  Pro¬ 
vided,  that  any  surplus  earnings  of  any  canal  may  be  appropriated  for  its  enlarge¬ 
ment  or  extension.” 

S1  In  the  case  of  Burke  v.  Snively  et  al.,  the  decision  in  the  Supreme 
Court  was  handed  down  February  17,  1904,  and  is  given  in  full,  together  with  a 
dissenting  opinion,  in  the  Illinois  Reports,  Vol.  208,  p.  363,  and  also,  in  the 
Northeastern  Reporter ,  Vol.  70,  pp.  327-38. 

22  Since  the  completion  of  the  locks  at  Henry  and  Copperas  Creek  on  the 
Illinois  River,  the  portion  of  the  river  from  La  Salle  to  Copperas  Creek  has  been 
under  the  charge  of  the  canal  commissioners  and  is,  to  all  intents  and  purposes, 
an  extension  of  the  canal  to  the  latter  point.  The  lock  at  Henry  was  opened 
in  September,  1871,  and  that  at  Copperas  Creek  in  October,  1877. 

23  A  canal  boat  bearing  the  standard  load  draws  four  feet  and  eight  inches 
of  water. 


344 


JOURNAL  OF  POLITICAL  ECONOMY 


sales  of  lots  and  lands  in  1830  and  1836,  however,  convinced  the 
commissioners  that  the  only  hope  of  obtaining  any  large  part  of 
the  cost  of  the  canal  from  the  federal  land  grant  lay  in  the.  reten¬ 
tion  of  the  land  by  the  state  till  the  completion  of  the  canal  should 
have  increased  its  value.  Small  sales  of  lots  and  of  farm  and 
timber  lands  were  made  occasionally,  to  meet  the  most  urgent 
demands  on  the  canal  treasury.  As  a  means  of  replenishing  the 
treasury,  however,  the  sales  proved  a  failure:  first,  because  the 
amounts  sold  were  relatively  small,  and  secondly,  because  the 
payments  were  made  in  instalments,  most  of  which  did  not  fall 
due  for  several  years  after  the  date  of  sale.  Land  sales,  even 
under  the  act  of  January  9,  1836,  which  required  the  payment 
of  the  purchase  price  in  four  equal  annual  instalments,  would 
not  have  met  the  pressing  needs  of  the  treasury,  and  succeeding 
laws  rendered  this  method  of  raising  needed  funds  entirely  in¬ 
effective.  The  act  of  February  26,  1839,  provided  that  one-tenth 
of  the  purchase  price  should  be  paid  on  receipt  of  the  certificate 
of  purchase,  but  the  remaining  nine-tenths  became  due  only  at 
the  expiration  of  twenty  years  from  the  date  of  sale.24 

I11  the  desperate  state  of  the  finances  in  1840,  the  commis¬ 
sioners  were  directed  to  sell  enough  canal  land  each  year  to  meet 
the  interest  on  the  canal  debt.25  The  sales  for  the  first  year, 
however,  amounted  to  only  $61,975.57,  and  the  sales  for  the  fol¬ 
lowing  year,  to  $88, 598. 38. 26  Since  the  land  was  sold  under  the 
provisions  of  the  act  of  February  26,  1839,  and  since  the  canal 
debt  was  even  then  about  $3,000,000  and  rapidly  increasing,  it 
was  clearly  evident  that  the  interest  could  not  be  met  by  the  sale 
of  land,  unless  at  a  price  detrimental  to  the  permanent  financial 
welfare  of  the  state.  Moreover,  the  land  could  not  be  sold  at 

24  The  commissioners  were  permitted  to  increase  the  proportion  of  the  pur¬ 
chase  price  which  should  be  paid  at  the  time  of  purchase,  by  previously  advertis¬ 
ing  the  conditions  of  the  sale.  Little  advantage  seems  to  have  been  gained  by 
this  privilege.  Many  changes  were  later  made  in  the  conditions  of  sales,  but  it 
was  not  till  1869  that  payments  had  to  be  made  in  cash  at  the  time  of  the 
purchase. 

25  Laws  of  Illinois,  1839-40,  pp.  79,  80. 

28  Report  of  canal  commissioners,  1878,  p.  47. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


345 


lower  prices,  except  on  a  revaluation  by  the  appraisers.27  This 
the  commissioners  did  not  desire.  They  preferred  to  continue 
the  policy  of  reserving  the  greater  part  of  the  land  till  the  com¬ 
pletion  of  the  canal  should  have  enhanced  its  value  sufficiently 
to  cover  a  large  part  of  the  canal  debt.  From  July  i,  1841,  the 
state  suspended  interest  payments  on  its  entire  debt.28  Had  the 
commissioners  pursued  the  policy  authorized  by  the  act  of  Febru¬ 
ary  1,  1840,  this  event  might  have  been  delayed.  It  would  not 
have  been  averted.  On  the  other  hand,  the  sale  of  a  sufficient 
amount  of  the  canal  land  to  meet  the  interest  charges  on  the 
canal  debt  would  have  so  seriously  weakened  the  resources  of 
the  canal  that  it  is  doubtful  whether  the  creditors  would  have 
accepted  the  deed  of  trust  on  the  canal  and  its  property  as  a  suffi¬ 
cient  guarantee  of  the  $1,600,000  loan  necessary  to  the  comple¬ 
tion  of  the  work.  The  policy  of  the  commissioners  may  have 
permitted  the  state  to'  be  forced  to  a  temporary  suspension  of 
interest  payments,  but  it  prepared  the  way  for  the  completion 
of  the  canal  and  the  ultimate  extinguishment  of  the  canal  debt. 
Had  the  commissioners  adopted  the  policy  of  forcing  the  land 
on  the  market,  the  abandonment  of  the  canal  and  the  ultimate 
financial  ruin  of  the  state  would  have  been  inevitable,  and  the 
repudiation  of  the  state  debt  almost  certain.29 

The  land  policy  pursued  by  the  commissioners  saved  to  the 
state  an  asset  not  only  valuable  in  securing  the  necessary  loan, 
but,  as  it  proved,  equally  important  in  the  extinguishment  of 
the  canal  debt.  From  the  opening*  of  the  canal  for  traffic  till  the 
final  settlement  of  the  canal  debt,  the  sales  of  lands  and  lots 
played  an  important  part  in  furnishing  the  funds  for  the  liquida¬ 
tion  of  the  maturing  financial  obligations  of  the  canal.  In  the 

j 

summer  of  1848  the  trustees  sold  45,625  acres  of  land  and  2,244 
lots.  In  the  case  of  both  lands  and  lots,  the  selling  price  ex- 

27  No  land  or  lot  could  be  sold  till  after  its  value  had  been  appraised  by 
the  board  of  appraisers,  and  none  could  be  sold  for  less  than  its  appraised 
value.  The  fluctuation  of  real  estate  values,  especially  in  cities,  necessitated 
frequent  revaluations. 

28  Cf.  lournal  of  Political  Economy,  Vol.  17,  No.  5,  p.  287,  note  63. 

29  Repudiation  had  already  been  seriously  proposed  by  many  people  as  the 
only  possible  means  of  freeing  the  state  from  an  excessive  burden  of  debt. 


346 


JOURNAL  OF  POLITICAL  ECONOMY 


ceeded  the  appraised  valuations.30  The  spirited  competition 
among  the  buyers  forced  the  prices  of  many  of  the  lots  to  double 
their  appraisement.31  In  the  first  three  years  of  the  operation  of 
the  canal  the  sales  of  lots  and  lands  amounted  to  $1,001,487, 32 
while  all  the  sales  for  the  fifteen  years  preceding  the  beginning 
of  the  trust  had  aggregated  only  $i,i52,o64.79.33  During  the 
continuance  of  the  trust  from  June  26,  1845,  to  April  30,  1871, 
the  trustees  disposed  of  lands  and  lots  to  the  amount  of  $4,706,- 
482.6s.34  After  the  extinguishment  of  the  canal  debt,  the  sales 
proceeded  more  slowly.  Between  April  30,  1871,  and  December 
1,  1878,  they  yielded  $27,492.21  to  the  canal  funds;  but  in  the 
succeeding  seven  years,  ending  December  1,  1885,  the  total 
receipts  from  this  source  were  only  $6,668. 28. 35  From  that  time 
the  sales  were  of  little  consequence  till  the  decline  of  other 
sources  of  revenue  in  recent  years  compelled  the  canal  manage¬ 
ment  to  resort  to  this  method  of  replenishing  the  treasury.  In 
the  meantime,  the  advance  in  the  value  of  city  lots,  which  com¬ 
pose  the  most  valuable  part  of  the  real  estate  held  by  the  canal, 
has  been  sufficient  to  leave  the  value  of  the  present  holdings  about 
the  same  as  those  of  1885. 36  The  estimated  value  at  that  time 
was  $166,023.59.  In  1907,  it  was  $168,878.59.  Since  1898, 
however,  there  has  been  a  decrease  of  $18,969.41  in  the  value 

30  The  lands  sold  were  appraised  at  $208,021  and  sold  for  $210,775.  The 
appraised  value  of  the  lots  was  $505,124  and  the  selling  price,  $554,864. 

31  The  Chicago  Daily  Democrat ,  September  26,  1848.  This  issue  of  the 
Democrat  quotes  at  length  from  the  Ottawa  Free  Trader  concerning  the  sale  of 
lots  in  that  city.  The  Free  Trader  estimates  that  the  sales  of  lots  in  Ottawa 
had  exceeded  $130,000. 

32  Swift’s  Report  to  the  canal  creditors,  1850,  p.  9. 

33  Report  of  the  Secretary  of  War ,  1887,  Vol.  II,  Part  3,  p.  2147. 

3*  Final  Report  of  the  canal  trustees,  1871,  p.  9. 

35  Report  of  the  Secretary  of  War,  1887,  Vol.  II,  Part  3,  pp.  2147,  2148. 

3f>  Of  the  estimated  values  for  each  year  since  1885,  only  $360.59  has  been 


assigned  to  the  tracts  of  land  as  follows  : 

Two  very  small  islands . $  10.00 

Two  tracts  of  land  aggregating  15.34  acres .  350.59 


$360.59 


I 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


347 


of  lands  and  lots  held,  but  during  the  same  period  the  sales  have 
amounted  to  $79, 187.73. 37 

The  early  management  of  the  canal  lands  was  of  such  a  char¬ 
acter  that,  at  the.  conclusion  of  the  trust  in  1871,  sufficient  funds 
had  been  derived  from  their  sales  to  cancel  $5,858,547.47  of  the 
$6,557,681.50  which  the  canal  originally  cost,  exclusive  of  interest 
charges,  exchanges,  and  other  similar  items.  Since  the  pay¬ 
ment  of  the  original  canal  debt,  more  than  $100,000  has  been 
received  from  the  sales  of  lots  and  lands,  in  addition  to  the 
rentals,  which  have  varied  from  year  to  year. 

The  management  of  the  canal  was  liberal  toward  the  pur¬ 
chasers  of  canal  land.  Although  the  law  provided  for  the  for¬ 
feiture  of  lands  and  lots  if  the  purchaser  failed  to  meet  his 
payments  of  principal  or  interest  when  due,  it  also  made  the 
certificates  of  purchase  negotiable  and  transferable  either  by  in¬ 
dorsement  or  by  a  separate  instrument.  These  provisions  not 
being  sufficient  for  the  relief  of  purchasers  who  had  bought 
lands  or  lots  at  the  inflated  prices  preceding  the  panic  of  1837, 
the  act  of  February  27,  1841,  made  special  provision  for  this 
class  of  debtors.38  The  debtor  was  permitted  to  select  such  part 
of  his  purchase  as  the  payments  made  would  buy,  after  deduct¬ 
ing  one-third  from  the  original  purchase  price.  On  relinquish¬ 
ment  of  the  remainder,  his  remaining  obligations  to  the  state 
were  canceled.39  The  state  went  even  farther  in  its  liberality 
and  passed  numerous  special  acts  for  the  relief  of  individuals 
who,  for  one  reason  or  another,  did  not  come  within  the  purview 
of  the  general  enactments.40  It  also  enabled  men  to  secure  choice 
tracts  of  land  by  permitting  them  to  occupy  and  improve  the 
tracts  before  they  were  offered  for  sale.  By  payment  of  rent  to 

37  The  decrease  in  value  since  1898  and  the  amount  of  sales  for  the  same 
period  have  been  computed  from  the  annual  reports  of  the  canal  commissioners. 

38  Laws  of  Illinois,  1841,  pp.  49-51. 

39  In  the  case  of  farm  or  timber  lands  all  divisions  must  be  made  on  the 
basis  of  the  government  survey  divisions.  In  case  of  city  lots,  such  division 
was  required  as  would  leave  to  the  state  proportionately  as  much  frontage  as 
to  the  purchaser. 

40  Examples  of  such  acts  are  those  of  February  25,  1845,  and  numerous 

others.  > 


348 


JOURNAL  OF  POLITICAL  ECONOMY 


the  state  these  men  were  able  to  hold  the  land  till  it  was  put  upon 
the  market,  when  they  were  usually  able  to  secure  it  at  the  valua¬ 
tion  of  the  appraisers.  For  the  protection  of  the  state  and  the 
bona-fide  settlers  against  the  land  grabber  and  speculator,  the 
amount  of  land  which  persons  were  privileged  to  hold  in  this  way 
was  restricted  to  six  hundred  and  forty  acres.41 

An  effort  was  also  made  by  the  canal  management  to  assist  in 
attracting  to  the  canal  region  a  desirable  class  of  settlers  by 
promoting  the  community  life  of  the  villages  and  towns  along 
the  canal,  and  by  aiding  the  social  and  moral  uplift  of  the  com¬ 
munity  through  provision  for  public  education  and  religious  in¬ 
struction.42  In  pursuance  of  this  policy  lots  were  granted  for 
public  buildings,  such  as  courthouses,  schools,  and  churches. 
Liberal  concessions  were  made  in  the  matter  of  the  location  of 
the  lots  and  in  the  manner  of  using  them.43 

In  addition  to  the  renting  of  unsold  lands,  it  has  been  part  of 
the  policy  of  the  management  to  grant  twenty-year  leases  for  the 
use  of  such  portions  of  the  ninety-foot  strips  as  are  favorably 
situated  for  the  location  of  warehouses,  elevators,  or  other  busi¬ 
ness  establishments.44  The  same  policy  is  pursued  relative  to  the 
water  power  developed  at  various  places  along  the  canal  from 
Lockport  to  La  Salle.  These  leases  of  water  power  have  been  of 
especial  importance  at  Lockport,  Joliet,  and  Ottawa.  The  water 
power  lease  at  Lockport  was  of  less  financial  importance  directly 
than  indirectly,  however.  The  Norton  Mills  at  that  place  derived 

41  Laws  of  Illinois,  1837,  p.  45. 

42  Henry  Brown,  a  historian  of  Chicago,  is  authority  for  the  statement  that 
the  canal  commissioners  gave  twenty-five  lots  to  Chicago  to  aid  in  the  erection 
of  public  buildings  ( Present  and  Future  Prospects  of  Chicago,  p.  5). 

43  Churches  were  permitted  to  sell  a  part  or  all  of  the  lots  donated,  pro¬ 
vided  the  funds  received  from  the  sale  should  be  expended  in  the  erection  of  a 
church  building  or  in  securing  a  more  desirable  site. 

44  On  taking  control  of  the  canal,  the  trustees  adopted  the  policy  of  charging 
rentals  for  the  use  of  canal  property.  The  act  of  February  21,  1843,  prohibited 
the  sale  of  lands  or  water  power  till  three  months  after  the  canal  was  opened 
for  operation;  but  the  act  of  February  25,  1847,  removed  the  restriction  and 
left  the  matter  to  the  discretion  of  the  trustees,  with  the  one  restriction  that 
not  more  than  one-tenth  of  the  canal  lots  or  lands  in  any  one  city  or  town  could 
be  sold  till  after  the  completion  of  the  canal. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


349 


their  power  from  the  canal,  but  they  also  transported  much  of 
their  wheat  and  flour  on  it.  For  several  years  before  the  closing 
of  these  mills  in  1907,  the  wheat  carried  from  Chicago  to  the 
mills  and  the  flour  and  millstuffs  returned  constituted  a  large 
part  of  the  traffic  on  the  upper  section  of  the  canal.45  In  addition 
to  Norton  &  Co.,  among  the  more  prominent  of  the  lessees  of 
recent  years  have  been  the  Economy  Light  and  Power  Company 
and  the  Great  Western  Cereal  Company  of  Joliet,  and  the  Ottawa 
Hydraulic  Company  and  the  Northern  Illinois  Light  and  Trac¬ 
tion  Company  of  Ottawa.  Many  other  corporations,  firms,  and 
individuals  derive  power  from  the  same  source,  or  pay  rentals 
for  the  occupation  of  portions  of  the  ninety-foot  strip.  The 
opening  of  the  Chicago  Drainage  Canal  materially  increased  the 
rentals  from  water  power  by  largely  augmenting  the  flow  over 
the  state  dam  where  the  Illinois  and  Michigan  canal  crosses  the 
Des  Plaines  River  in  the  city  of  Joliet.  The  increased  rentals 
from  water  power  have  about  counterbalanced  the  decrease  of 
those  from  the  ninety-foot  strip,  which  have  declined  with  the 
decline  of  the  traffic  on  the  canal.  The  total  earnings  from  the 
former  of  these  sources  during  the  ten-year  period  1898  to  1907 
have  aggregated  $111,900.57,  and  from  the  latter,  $47,327.01. 
To  these  rentals  should  be  added  the  receipts  from  the  ice  leases 
and  from  water-pipe  and  sprinkling  privileges  and  miscellaneous 
items,  which  amounted  to  $9,029.00  and  $18,667.34  respectively 
for  the  decade.  Thus  the  total  earnings  in  the  last  ten  years  from 
rentals,  leases,  and  privileges  have  been  $186,923.92,  while  the 
tolls  for  the  same  period  amounted  to  only  $129,491. 

The  state  has  never  attempted  to  transport  passengers  or 
freight.  It  has  furnished  the  route  and  left  the  work  of  trans¬ 
portation  to  individuals  and  corporations.  On  the  opening  of  the 
canal  the  commissioners  fixed  the  rate  of  tolls  to  be  paid  by  the 
owners  of  vessels  for  the  privilege  of  using  the  canal.  These 
tolls  were  made  up  of  two  separate  charges :  First,  a  charge  per 
mile  for  each  boat  or  barge;  second,  a  charge  per  mile  for  each 

45  Of  the  38,820  tons  of  freight  carried  on  the  canal  in  1905,  there  were 
335,334  bushels  of  wheat  shipped  from  Chicago  and  6,163,444  pounds  of  flour 
and  2,340,927  pounds  of  millstuffs  received.  Practically  all  of  this  business 
was  produced  by  the  Lockport  mills. 


35° 


JOURNAL  OF  POLITICAL  ECONOMY 


thousand  pounds  of  freight  or  for  each  passenger  carried.  The 
same  method  of  estimating  the  charges  for  the  use  of  the  canal 
has  been  continued  down  to  the  present  time;  but  the  rates  have 
been  reduced  from  time  to  time  in  an  effort  to  stave  off  the 
increasing  competition  of  the  railways.  Notwithstanding  the 
reductions  in  canal  charges,  the  traffic  has  gone  more  and  more 
to  the  railroads  till  for  the  year  ending  November  30,  1905,  the 
total  amount  of  freight  transported  on  the  canal  was  only  38,820 
tons  against  1,011,287  tons  in  1882.  For  1905  the  tolls,  includ¬ 
ing  those  collected  at  the  locks  at  Henry  and  Copperas  Creek  on 
the  Illinois  River,  amounted  to  only  $4,950,  and  the  gross  ex¬ 
penditures  were  $50,890. 46  For  this  decline  in  tonnage  and  tolls 
the  management  is  only  partially  responsible.  The  railroads 
have  taken  the  business  from  the  canal  partly  because  of  the 
advantages  offered  by  the  great  railway  systems  with  their 
methods  of  prorating  of  freights  and  interchange  of  cars,  and 
partly  because  of  the  fact  that  the  railroads  are  managed  by 
capable  men,  thoroughly  familiar  with  the  transportation  busi¬ 
ness,  while  the  canal  is  managed  by  men  appointed  because  of 
the  political  influence  back  of  them. 

Although  politics  have  played  a  more  or  less  important  part 
in  the  management  of  the  canal  from  the  beginning,  they  have 
been  a  more  pronounced  element  in  the  determination  of  appoint¬ 
ments  in  recent  years  than  formerly.  For  many  years  practically 
all  the  appointments  have  been  determined  by  political  affilia¬ 
tions.47  The  result  has  been  a  degree  of  inefficiency  in  the  canal 
administration  which  no  modern  corporation  would  tolerate  on 
the  part  of  its  managers  or  employees.  Two  instances'  which 
have  come  to  public  knowledge  within  the  last  dozen  years  exhibit 

\ 

48 Report  of  the  canal  commissioners,  1905,  p.  25.  A  statement  of  the  tolls, 
expenditures,  and  tonnage  of  the  canal  is  given  at  the  end  of  the  article. 

47  The  insecurity  of  tenure  is  illustrated  by  the  changes  which  occurred  in 
the  personnel  of  the  canal  force  between  February  15  and  March  15,  1897,  when 
every  man  on  the  pay  roll  with  a  single  exception  was  changed.  The  changes 
were  somewhat  more  sweeping  in  this  case  than  usual  because  the  state  adminis¬ 
tration  was  passing  from  the  control  of  one  party  to  that  of  its  opponent ; 
but  the  principle  holds  true  generally  that  the  employees  must  affiliate  with  the 
political  faction  in  power. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


351 


this  phase  of  the  later  management.48  In  the  investigation  of 
the  damages  which  would  be  sustained  by  the  canal  property 
from  the  construction  of  the  Chicago  Drainage  Canal,  it  was 
discovered  that  for  many  years  squatters  had  held  several  tracts 
of  canal  land  which  had  been  entirely  lost  sight  of  by  the  canal 
management.  It  was  further  discovered  that  among  the  for¬ 
gotten  files  of  the  canal  office  were  unrecorded  deeds  to  several 
lots  and  parcels  of  land  in  the  city  of  Joliet.49  Another  failure 
to  conserve  the  best  interests  of  the  state  in  the  management  of 
the  canal  affairs  came  to  light  in  the  legislative  investigation  of 
the  “Dresden  Heights  dam  lease,”  in  the  month  of  November, 
1907.  By  their  own  admission,  the  canal  officials  entered  into  a 
sale  and  lease  of  state  property  without  any  definite  knowledge 
of  the  value  of  the  rights  conveyed.50  The  lease  was  made 
nominally  to  Harold  F.  Griswold,  who  transferred  it  to  the  real 
lessee,  the  Economy  Light  and  Power  Company  of  Joliet.51 

48  The  one  scandal  connected  with  the  earlier  history  of  the  canal  grew 
out  of  the  failure  of  the  canal  officials  properly  to  cancel  or  destroy  the 
redeemed  scrip.  By  reason  of  this  failure  the  state  came  near  losing  $200,000 
through  the  redemption  of  a  portion  of  it  a  second  time,  and  the  fair  name  of 
ex-Governor  Mattison  was  brought  under  suspicion.  The  scrip  in  question  was 
issued  in  1840  and  mostly  redeemed  within  a  few  months.  After  remaining  in 
the  Chicago  branch  of  the  Illinois  State  Bank  and  at  the  canal  office  till  1853,  it 
was  transferred  to  Springfield  in  a  trunk  and  a  shoe  box  and  placed  in  the 
basement  of  the  capitol  building.  In  1857,  Governor  Mattison  presented  for 
redemption  scrip  which  with  the  accumulated  interest  amounted  to  about 
$200,000.  In  1859  a  Senate  committee  and  the  grand  jury  of  Sangamon  County 
failed  to  hold  Mattison  culpable.  He  reimbursed  the  state,  but  his  friends 
claimed  that  he  did  so  to  prevent  financial  loss  arising  under  his  administration 
and  that  the  scrip  presented  had  come  into  his  hands  through  legitimate  business 
transactions.  Cancellation  or  destruction  of  the  scrip  as  redeemed  would  have 
prevented  the  unfortunate  affair. 

49  Report  of  the  canal  commissioners,  1897,  pp.  9-1 1. 

50  The  report  of  the  testimony  given  before  the  legislative  investigating  com¬ 
mittee  was  published  daily  in  the  Chicago  Record-Herald  during  the  progress  of 
the  investigation,  beginning  November  20,  1907. 

51  The  entire  deal  consisted  of  three  parts :  First,  a  lease  of  flowage  rights 
in  the  Des  Plaines  River,  consideration  $2,200  ;  second,  the  right  to  place  a  line 
of  poles  for  the  purpose  of  stringing  electric  wires  along  the  ninety-foot  strip ; 
third,  the  purchase  of  a  small  tract  of  land  lying  between  the  canal  and  the 
river  bank,  consideration  $500.  The  leases  were  made .  in  September,  1904, 
and  the  sale  in  January,  1905. 


352 


JOURNAL  OF  POLITICAL  ECONOMY 


The  consideration  was  $2,200  and  the  value  of  the  rights  con¬ 
veyed  has  been  variously  estimated  at  from  $8,000,000  to  $15,- 
000,000.  Even  assuming  that  the  lowest  of  these  estimates  is 
an  exaggeration  of  the  real  value  of  these  rights,  it  is  apparent 
that  the  canal  officials  permitted  themselves  to  be  drawn  into 
a  contract  by  which  the  state  would  not  receive  compensa¬ 
tion  commensurate  with  the  rights  conveyed.  The  lease  failed 
also  properly  to  safeguard  the  interests  of  the  state  by  omitting 
the  clause,  usual  in  other  canal  leases,  enabling  the  state  to 
terminate  it  at  pleasure. 

Although  in  recent  years  the  canal  has  been  compelled  to 
carry  the  incubus  of  the  spoils  politician,  it  has  not,  on  the  whole, 
suffered  more  from  this  source  than  the  state  penal  and  chari¬ 
table  institutions  have  done.  The  management  has  been  of  differ¬ 
ent  character  and  efficiency  at  different  times  and  with  different 
boards.  As  a  rule,  however,  it  was  more  efficient  when  the  canal 
was  an  important  commercial  route  than  it  has  been  since  the 
traffic  has  largely  gone  to  the  railroads.  Since  the  canal  has 
ceased  to  be  of  much  consequence  as  a  transportation  agency,  the 
public  has  ceased  to  exercise  the  watchfulness,  born  of  personal 
interest,  which  compelled  a  reasonable  degree  of  efficiency  in  its 
earlier  management.  The  history  of  the  canal  has  shown  once 
again  the  oft-demonstrated  facts  that,  in  the  long  run,  an  intel¬ 
ligent  public  interest  is  essential  to  the  successful  conduct  of  a 
public  business  and  that  there  is  no  necessary  correspondence 
between  the  ability  of  a  political  appointee  to  obtain  an  appoint¬ 
ment  and  his  ability  successfully  to  perform  the  duties  which 
attach  to  the  position  obtained.  There  can  be  little  doubt  that 
a  greater  care  exercised  in  the  selection  of  the  canal  commission¬ 
ers  and  a  well-organized  civil  service  based  on  the  merit  system 
and  strictly  applied  in  the  selection  of  all  officers  and  employees 
would  have  added  to  the  efficiency  of  the  canal  management. 
The  tasks  to  be  performed  demanded  men  of  large  ability,  special 
skill,  and  unswerving  integrity.  The  system  employed  in  the 
selection  of  men  and  the  distribution  of  powers  and  responsi¬ 
bilities  has  not  always  insured  the  highest  type  of  management. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


353 


TOLLS,  EXPENDITURES,  AND  TONNAGE  OF  THE  ILLINOIS  AND 
MICHIGAN  CANAL  TO  THE  CLOSE  OF  1907 


Year 

Gross 

Expenses 

Tolls 

Tons 

Transported* 

Year 

Gross 

Expenses 

Tolls 

Tons 

Transported 

1848 

$  48,197 

$  87,890 

1879 

97,701 

89,065 

669,559 

1849 

7°>932 

118,375 

1880 

125,601 

92,296 

751, 360 

185° 

68,415 

125,504 

1881 

108,223 

85,130 

826,133 

1851 

58,475 

i73,3oo 

1882 

104,412 

85,947 

1,011,287 

1852 

53>5°8 

168,577 

1883 

116,756 

77,975 

925,575 

1853 

44,870 

!73,372 

1884 

99,289 

77>!°2 

956,721 

1854 

53,242 

198,326 

1885 

86,393 

66,800 

827,355 

1855 

70,873 

180,519 

1886 

72,430 

62,516 

808,019 

1856 

9U458 

184,310 

1887 

71,385 

58,024 

742,074 

1857 

103,282 

197,830 

1888 

76,845 

56,028 

75i,o55 

1858 

58,088 

I97,I7I 

1889 

85,478 

60,605 

917,047 

1859 

74,432 

132,147 

1890 

75U25 

55,!I2 

742,392 

i860 

82,583 

138,554 

367,437 

1891 

72,592 

49,557 

641,156 

1861 

55,o6i 

218,040 

547,295 

1892 

67U37 

54,937 

783,288 

1862 

55,362 

264,647 

673,590 

1893 

59,522 

38,702 

529,816 

1863 

62,715 

210,386 

619,599 

1894 

54,258 

44,928 

617,811 

1864 

66,107 

156,607 

510,286 

!895 

71,142 

39,io6 

59i,5o7 

1865 

124,869 

300,810 

616,140 

1896 

77,987 

32,100 

446,762 

1866 

116,363 

302,958 

746,815 

1897 

68,307 

33,o65 

484,575 

1867 

162,656 

252U31 

746,815 

1898 

78,986 

38,570 

395,' 017 

1868 

122,052 

215,720 

737,727 

1899 

9!, 196 

41,021 

469,352 

1869 

9U765 

238,759 

817,738 

1900 

88,317 

13,867 

i2i,759 

1870 

108,695 

149,635 

585,970 

1901 

111,002 

8,120 

81,456 

1871 

97,232 

159,050 

628,975 

1902 

127,150 

2,879 

35,824 

1872 

88,876 

165,874 

783,641 

1903 

52,400 

5,857 

62,894 

1873 

81,088 

166,641 

849,533 

1904 

42,761 

6,743 

47,616 

1874 

73,798 

144,831 

712,020 

!9°5 

50,890 

4,95o 

38,820 

1875 

74,5n 

107,081 

670,025 

1906 

48,523 

5,358 

35,48o 

1876 

1877 

9I,595 

110,018 

113,293 

96,913 

691,943 

605,912 

1907 

50,050 

2,126 

80,616 

1878 

82,330 

84,330 

698,792 

$4,995,3l6 

$6,610,067 

71,002,59! 

*  Statistics  of  the  tonnage  before  i860  are  not  available. 


The  University  of  Missouri 


J.  W.  Putnam 


V 


THE  JOURNAL 

OF 

POLITICAL  ECONOMY 


Volume  17  JULY— 1909  Number  7 


AN  ECONOMIC  HISTORY  OF  THE  ILLINOIS  AND 

MICHIGAN  CANAL.  Ill 

IV.  ECONOMIC  INFLUENCE 

Before  the  canal  was  opened  for  traffic  its  local  influence  in 
the  development  of  the  region  through  which  it  passes  had  been 
distinctly  marked.  After  its  opening  it  wielded  a  large  influence, 
not  only  locally,  but  over  a  wider  range  of  territory,  by  means 
of  the  added  facilities  which  it  furnished  as  a  transportation 
route  before  the  era  of  railroads,  giving  access  to  otherwise 
closed  markets.  Since  the  era  of  railroad-building  began  in  the 
Middle  West,  it  has  also  served  as  a  freight-rate  regulator  at 
all  competitive  points.  In  the  performance  of  these  services, 
however,  it  has  been  handicapped  by  the  conditions  of  the  Illi¬ 
nois  River,  which  with  the  canal  completes  the  waterway  from 
Lake  Michigan  to  the  Mississippi;  by  the  character  and  con¬ 
ditions  of  railroad  competition;  and,  to  a  less  extent  no  doubt, 
by  the  character  of  the  canal  management. 

Three  periods  may  be  distinguished,  logically  and  chrono¬ 
logically,  in  the  history  of  the  economic  influence  of  the  canal. 
The  first  included  the  development  of  the  project  and  the  con¬ 
struction  of  the  canal.  The  second  comprised  the  six  years 
from  the  beginning  of  the  traffic  on  the  canal  in  1848  to  the 
opening  of  the  Chicago  and  Rock  Island  Railroad  from  Chicago 
to  the  Mississippi  River  in  1854.  The  third  is  the  period  of 
competition  between  the  canal  and  the  railroads  for  traffic. 


413 


4H 


JOURNAL  OF  POLITICAL  ECONOMY 


During  the  years  of  projection  and  construction  of  the  canal 
the  wealth  and  population  of  the  canal  region  grew  apace.  In 
1829,  when  the  canal  commissioners  laid  out  the  towns  of  Chicago 
and  Ottawa,  Peoria  was  a  small  pioneer  outpost  on  the  extreme 
northern  frontier  of  the  settled  portion  of  Illinois.1  Beyond  it 
and  far  removed  from  any  immediate  connection  with  the 
remainder  of  the  state,  and  separated  by  wide  stretches  of 
country  traversed  only  by  the  red  man  and  a  few  traders,  lay  a 
small  settlement  at  the  mouth  of  the  Chicago  River  and  another 
at  Galena  in  the  lead-mining  district  on  the  upper  Mississippi.2 
But,  between  1830  and  1835,  the  increasing  probability  of  the 
early  construction  of  the  canal  and  the  widely  disseminated 
opinion  that  its  completion  would  greatly  increase  the  value  of 
all  the  land  within  a  reasonable  distance  of  the  route  and  develop 
the  proposed  cities  and  villages  along  its  course,  led  to  a  steadily 
increasing  demand  for  farms  and  town  lots  along  the  line  of 
the  projected  waterway.  This  movement,  slow  at  first,  was 
accelerated  as  it  became  increasingly  apparent  that  the  construc¬ 
tion  would  not  be  long  delayed.  By  the  beginning  of  the  actual 
work  of  construction  in  1836,  real  estate  speculation  had  become 
the  chief  industry  of  the  canal  region.  Shrewd  business  men 
perceived  that  Chicago  would  necessarily  become  the  transfer 
point  for  all  passengers  and  commerce  passing  between  the 
Great  Lakes  and  the  canal  and  that  it  was  destined  to  be  the 
emporium  of  western  trade.3  A  realization  of  these  facts  made 
the  canal  region,  and  particularly  Chicago,  a  favorite  place  for 
the  exercise  of  the  speculative  mania  that  swept  over  the  country 

1  There  were  few  settlers  north  of  Fulton  County  in  the  “Military  Tract,” 
or  north  of  the  Sangamon  River  east  of  the  Illinois. 

2  The  entire  population  in  the  vicinity  of  the  present  city  of  Chicago, 
including  white  families,  half-breeds,  and  three  or  four  French  traders,  did  not 
exceed  one  hundred.  The  poll-book  used  at  an  election  held  in  the  precinct  of 
Chicago,  Peoria  County,  August  2,  1830,  contains  thirty-two  names.  Not  all  of 
these  voters  lived  at  the  village  of  Chicago.  Cf.  Wentworth’s  lecture  before 
the  Chicago  Historical  Society,  in  the  Fergus  Historical  Series,  No.  7,  p.  16. 

3  As  originally  laid  out  in  1830,  the  town  of  Chicago  comprised  the  terri¬ 
tory  between  the  present  streets  of  State  and  Halsted,  and  Kinzie  and  Madi¬ 
son,  the  junction  of  the  north  and  south  forks  of  the  Chicago  river  falling 
within  the  limits  of  the  town. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


415 


just  prior  to  the  panic  of  1837.  Accordingly,  real-estate  values 
advanced  by  leaps  and  bounds.4  In  1830,  126  lots  sold  in  Chicago 
at  prices  varying  from  $24  to  $130  each,  but  averaging  about 
$35.  Eighty  acres  of  land,  now  in  the  heart  of  the  city,  brought 
$1.55  an  acre.5  Four  years  later,  lots  on  South  Water  Street, 
which  was  then  the  chief  business  street  of  the  city,  sold  for 
$3,500  each.6  A  tract  of  40  acres  of  land,  now  included  in 
Butler,  Wright,  and  Webster’s  addition,  was  purchased  on  Jan¬ 
uary  2,  1835,  for  $4,000.  On  April  10,  following,  it  was  sold 
for  $io,ooo.7  The  active  preparation  for  the  actual  beginning 
of  the  work  only  led  to  still  wilder  speculation,  till  the  mania 
was  checked  by  the  panic  of  1837. 

The  rise  and  decline  in  real-estate  values  in  other  towns 
along  the  canal  were  less  phenomenal  and  spectacular  but  other¬ 
wise  very  similar  to  those  at  Chicago.  The  growth  of  the  towns 
was  slower  and  the  speculative  spirit  less  rampant.  Conse¬ 
quently,  the  real-estate  prices  were  not  subject  to  such  violent 
fluctuations.  At  Ottawa,  in  1830,  the  canal  commissioners  sold 
nine  lots  at  an  average  price  of  $20  each.  In  1836,  they  sold 
seventy-eight  at  an  average  price  of  $273. 85. 8  In  other  canal 
towns  the  increase  in  values  followed  about  the  same  course  as 
at  Ottawa. 

As  was  to  be  expected  from  the  inflated  real-estate  values, 
the  reaction  produced  by  the  panic  of  1837  was  particularly  vio¬ 
lent  in  Chicago.  After  the  panic,  periods  of  inflated  prices  were 
succeeded  by  periods  of  depression  for  several  years.  Some  of 
these  variations  took  a  wide  range.  The  high  prices  of  1843 
were  followed  by  the  heavy  decline  in  1845.  In  the  latter  year, 
thirteen  canal  lots  which  had  been  forfeited  by  their  former  pur¬ 
chasers  were  sold  for  $8,622.  These  same  lots  had  formerly 
been  appraised  at  $49,430.  In  the  same  year,  a  syndicate  of 
canal  creditors  accepted  at  an  appraisement  of  $30,210,  lots  and 

*  Andreas,  History  of  Chicago,  I,  115. 

5  Ibid. 

6  Wright,  Chicago,  Past,  Present,  Future,  pp.  4-6. 

7  Ibid.,  p.  6. 

8  Report  of  the  Canal  Commissioners,  1878,  p.  44. 


416 


JOURNAL  OF  POLITICAL  ECONOMY 


tracts  which  had  brought  $94,405  in  October,  1843.9  However, 
in  each  period  of  inflation  the  prices  usually  rose  higher  than  in 
the  preceding. 

Such  a  field  for  speculation  could  not  fail  to  attract  popula¬ 
tion  and  investments.  But  not  all  the  investments  were  of  a 
speculative  character.  Much  of  the  demand  for  farms  and  town 
lots  came  from  those  who  turned  their  faces  toward  the  canal 
region  to  make  it  their  future  home.  To  be  sure,  the  increasing 
demands  for  farms  and  business  locations  and  the  estimates 
placed  upon  the  future  enlargement  of  those  demands  formed 
the  basis  for  the  speculation  which  from  time  to  time  placed 
abnormal  valuations  on  the  choice  tracts  of  land  and  business 
situations.  But  the  general  upward  trend  of  real-estate  values 
throughout  the  period  depended  on  a  steadily  growing  popula¬ 
tion  and  industry. 

The  entire  population  included  in  the  territory  extending 
from  Peoria  to  Wisconsin  on  the  north  and  Indiana  on  the  east 
was  1,310  in  1830.10  By  1833,  Cook  and  LaSalle  counties  had 
been  created  along  the  line  of  the  proposed  canal,  the  former 
having  a  population  of  9,826  and  the  latter  of  4,754.  The  river 
section  of  the  route,  lying  between  the  proposed  western  termi¬ 
nus  of  the  canal  and  Peoria,  was  comprised  in  Putnam  and 
Peoria  counties  with  a  combined  population  of  7,241. 11  Thus 
there  had  been  a  net  gain  of  20,511  in  the  population  of  the 
region  of  the  proposed  waterway  in  five  years.  I11  the  next  five 
years  the  population  of  this  region  rose  to  46,451,  and,  in  1850, 
it  had  reached  125,708.  The  population  of  Chicago  grew  from 
4,470  in  1840  to  12,088  in  1845  and  28,269  in  1850.12  It  was 
in  the  neighborhood  of  20,000  at  the  opening  of  the  canal.13 

The  economic  development  of  the  region  is  further  shown 
by  the  rapidity  with  which  the  land  passed  from  public  to  pri- 

6  Op.  cit.,  p.  49. 

10Tzvelfth  Census ,  Population  I,  Part  I,  p.  1 6. 

11  Illinois  House  Journal,  9th  General  Assembly,  2d  Session,  p.  86,  gives  the 
state  census  by  counties  in  1835. 

12  Senate  Executive  Document,  No.  16,  34th  Congress,  3d  Session,  pp.  40,  41. 

13  The  population  given  for  1847  was  16,860  and  that  for  1848  was  20,035. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


417 


vate  ownership.  Of  the  3,626,536  acres  of  public  land  in  the 
Chicago  land  district  on  May  29,  1835,  2,780,640  acres  had  been 
sold  to  individual  purchasers  by  November  1,  1847. 3  4 

The  imports  and  exports  of  a  community  fairly  indicate  the 
condition  of  its  economic  development.  Measured  by  this 
standard,  the  economic  development  of  the  canal  region  did 
not  lag  behind  its  growth  of  population.  During  the  period 
under  consideration,  the  import  and  export  trade  of  the  region 
chiefly  centered  at  Chicago,  as  it  has  since  continued  to  do. 
The  trade  at  Chicago  grew  and  altered  in  character  with  the 
development  of  the  country  tributary  to  it.15 

The  second*  period  of  influence  of  the  canal  began  in  the 


14  Report  of  Jesse  B.  Thomas,  member  of  the  Executive  Committee  of  the 
Chicago  Harbor  and  River  Convention,  1847,  p.  18.  The  yearly  sales  were  as 
follows : 


Year 

Acres  Sold 

Year 

Acres  Sold 

1835 . 

. 37°,°43 

1842. . .  . 

. 194,556 

1836 . 

. 202,364 

1843.... 

1837 . 

.  15,697 

1844.... 

. 235,258 

1838 . 

.  87,881 

1845.... 

. 220,525 

1839 . 

. 160,635 

1846. . . . 

. 198,849 

1840 . 

. 137,382 

1847  (To  Nov.  1) .  98,569 

1841 . 

. 138,583 

15  For  the  years  when  the  canal  was 

in  process 

of  construction  the  imports 

and 

exports  at  Chicago 

were  as  follows  : 

Year 

Imports 

Exports 

Year 

Imports  Exports 

1836 

-  $325,203.90 

$  1,000.64 
11,065 .00 

1842 . . . . 

$  664,347.88  $  659,305.20 

1837 

...  373,677.12 

1843. . . . 

971,849.75  682,210.85 

1838 

.  ...  579,174.61 

16,044.75 

1844. . . . 

1,686,416.00  785,504.23 

1839 

630,980.2  6 

38,843.00 

l845- • • • 

2,043,445-73  i,543,5I9-85 

1840 

. . .  .  562,106 . 20 

228,635.74 

1846. . . . 

2,027,150.00  1,813,468.00 

1841 

...  564,347.88 

348,862 . 24 

1847 . . . . 

2,641,852.52  2,296,299.00 

Cf.  Report  of  Jesse  B.  Thomas,  member  of  the  Executive  Committee  of  the 
Chicago  Harbor  and  River  Convention,  1847,  p.  15.  These  statistics  are  also 
given  with  the  omission  of  the  columns  for  cents  in  Andrews,  Report  on 
Colonial  and  Lake  Trade,  p.  218. 

The  leading  articles  of  export  for  the  six  years  preceding  the  opening  of 
the  canal  and  the  quantities  exported  were : 


Bu.  Bbls.  Bbls.  of  Pork  Lbs. 

Year  of  Wheat  of  Flour  and  Beef  of  Wool 

1842  .  586,907  2,920  16,209  1,500 

1843  .  628,967  10,786  21,492  22,050 

1844  .  891,891  6,320  14,938  96,635 

1845  .  956,860  13,752  13,268  216,616 

1846  . 1,459,594  28,045  3B224  281,222 

1847  . 1,974,3°4  32,538  48,920  411,488 


418 


JOURNAL  OF  POLITICAL  ECONOMY 


month  of  April,  1848.16  The  development  of  the  region  during 
nearly  two  decades  preceding  had  been  in  anticipation  of  the 
canal.  That  of  the  next  six  years  was  due  to  a  partial  realiza¬ 
tion  of  the  anticipations  with  which  the  project  had  been  carried 
to  consummation.  It  was  a  period  of  large  industrial  growth. 
For  several  months  after  the  opening  of  the  canal  its  efficiency 
was  adversely  affected  by  an  insufficient  supply  of  water  on  the 
Summit  level,17  and  by  an  insufficient  supply  of  canal  boats  to 
carry  the  commodities  and  passengers  seeking  transportation.18 
Before  the  close  of  the  summer,  however,  the  traffic  had  assumed 
large  proportions.  Lumber  from  the  Great  Lakes  and  merchan¬ 
dise  from  the  East  passed  down  the  canal  for  distribution  to 
the  canal  and  river  towns  and  from  them  to  the  interior  settle¬ 
ments.  The  farm  products  from  the  canal  region  and  from  the 
Illinois  River,  and  sugar,  molasses,  coffee,  and  other  tropical 
products  from  the  New  Orleans  and  St.  Louis  markets  were 
carried  to  Chicago  on  their  way  to  northern  and  eastern  con¬ 
sumers.19 

With  improved  facilities  for  transportation  and  with  the 
rapid  industrial  development  of  the  region  influenced  by  the 
transportation  facilities  furnished  by  the  canal,  the  traffic  and 
earnings  grew  almost  steadily  throughout  the  period,  in  spite  of 

10  The  first  boat,  the  “General  Fry,”  passed  over  the  Summit  level  from 
Lockport  to  Chicago  on  April  io.  The  “General  Thornton”  made  the  first  trip 
the  entire  length  of  the  canal  from  LaSalle  to  Chicago,  where  it  arrived  on 
April  23.  In  the  canal  records  April  19  is  regarded  as  the  date  of  the  opening 
of  the  canal. 

17  The  Calumet  feeder  not  yet  being  completed,  the  supply  of  water  for 
the  Summit  level  had  to  be  pumped  from  the  Chicago  River  at  Bridgeport. 
The  porous  condition  of  the  soil  on  some  of  the  sections  of  the  canal  rendered 
it  extremely  difficult  to  maintain  a  sufficient  depth  of  water  for  the  navigation 
of  loaded  boats. 

18  At  the  opening  of  the  canal  only  sixteen  boats  were  in  commission  for 
the  service. 

10  In  their  report  for  1848  the  canal  trustees  mention,  with  evident  satis¬ 
faction  and  as  an  indication  of  large  through-freight  business  in  the  future, 
the  fact  that  sugar  and  other  commodities  from  the  New  Orleans  market 
reached  Buffalo  by  way  of  the  Illinois  and  Michigan  Canal  on  April  30,  a  full 
two  weeks  before  the  first  boat  of  the  season  reached  that  city  on  the  Erie 
canal. 


I 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


419 


unfavorable  river  conditions  in  1852  and  1853.  The  annual 
tolls  increased  from  $87,890  to  $198,321.  The  importance  of 
the  through  traffic  is  shown  by  the  fact  that,  in  1851,  44,000,000 
feet  of  lumber,  47,000,000  shingles,  and  11,000,000  lath  were 
sent  from  Chicago  to  points  beyond  the  western  terminus  of  the 
canal,  and  most  of  the  3,221,317  bushels  of  corn  received  at 
Chicago,  that  year,  came  from  the  Illinois  River. 

The  five  leading  articles  of  commerce  carried  on  the  canal 
during  the  period  were  wheat,  corn,  sugar,  merchandise,  and 
lumber.  The  quantity  of  each  of  these  commodities  carried  is 
illustrated  by  the  following  tabulation : 


Year 

Wheat,  Bu. 

Corn,  Bu. 

Sugar,  Lbs. 

Mdse.,  Lbs. 

Lumber,  Feet 

1848 . 

454,m 

5l6, 230 

3,219,122 

4,948,000 

15,425,357 

1849 . 

579,598 

754,288 

4,218,298 

9>i76,943 

26,882,000 

1850 . 

417,036 

3j7,674 

5,680,324 

10,372,623 

38,687,528 

1851 . 

78,062 

2,878,550 

4,59I,47I 

14,175,928 

56,845,027 

1852 . 

117,441 

1,810,880 

4,822,297 

15,390,346 

52,5Io,o5I 

1853 . 

340,277 

2, 49°, 67  5 

7,332,032 

10,687,598 

58,500,438 

Chicago,  Peoria,  and  St.  Louis  were  directly  affected  by  the 
canal  as  a  transportation  route.  Of  the  three,  St.  Louis  alone 
was  affected  adversely.  Even  this  detriment  was  of  limited 
extent.  Before  the  opening  of  the  canal,  the  Illinois  River 
trade  was  tributary  to  St.  Louis.  After  the  opening  of  the 
canal  most  of  it  became  tributary  to  Chicago.  For  southern 
products  St.  Louis  still  held  the  territory,  but  the  merchandise 
came  principally  through  the  canal  and  the  products  of  the  region 
largely  sought  the  Chicago  market.20  Henceforth  St.  Louis 
could  hope  to  draw  the  major  part  of  the  grain  from  the  Illinois 
River  only  when  temporary  market  conditions  should  chance  to 
give  that  market  an  advantage  in  price.  The  freight  rates  from 
the  Illinois  River  to  the  eastern  cities  by  way  of  Chicago  and 

20  The  Annual  Review  of  Trade  and  Commerce  of  St.  Louis  for  1848 
accounts  for  the  decrease  of  316,625  bushels  of  corn  and  237,588  bushels  of 
wheat  received  in  that  market  as  compared  with  the  receipts  of  the  previous 
year  in  the  following  words :  “The  deficit  may  be  accounted  for  from  the 
opening  of  the  Illinois  and  Michigan  Canal,  which  drew  off  to  Chicago  and 
other  points  on  the  Lakes  the  accustomed  heavy  arrivals  from  the  Illinois 
River,  and  greatly  lessened  the  aggregate  amount  received  at  this  port.”  The 
next  year  showed  a  still  greater  decrease. 


420 


JOURNAL  OF  POLITICAL  ECONOMY 


Buffalo  were  lower  than  those  by  way  of  St.  Louis  and  New 
Orleans.21  Consequently  the  grain  from  that  region  intended 
for  the  Atlantic  seaboard  cities  or  for  foreign  export  normally 
sought  the  northern  route. 

St.  Louis  was  compensated  for  this  loss,  however,  by  an 
enlargement  of  her  mercantile  interests.  The  wholesale  grocers 
found  new  markets  for  sugar,  coffee,  tobacco,  and  other  products 
of  the  lower  Mississippi  trade.22.  Eastern  merchandise,  for 
which  St.  Louis  was  the  distributing  point  for  the  rapidly 
developing  regions  west  of  the  Mississippi,  could  be  obtained 
more  expeditiously  and  cheaply  by  way  of  the  canal  than  by 
way  of  New  Orleans.23  From  1845  to  1858  the  grocery  busi¬ 
ness  of  St.  Louis  advanced  from  $1,134,367  to  $5,018,677  and 
the  hardware  business  from  $251,259  to  $904,316.  Between 

1846  and  1851  the  imports  of  coffee  rose  from  65,000  bags  to 
102,000  bags  and  the  sugar  traffic  increased  from  17,000  pack¬ 
ages  to  66,000  packages.  The  sales  of  dry  goods  in  1841 
amounted  to  $1,300,000;  in  1852  they  reached  $7,000,000. 24 
This  growth  of  trade  was  not  wholly  due  to  the  opening  of 
the  Illinois  and  Michigan  Canal  but  was  greatly  facilitated  by  it. 

The  opening  of  the  canal  gave  a  strong  impetus  to  the 
development  of  Peoria.  Although  checked  in  its  growth  by  the 
cholera  of  1849-50,  the  population  increased  from  3,014  in 

1847  to  6,202  at  the  close  of  1850.25  Five  hundred  and  seventy- 
nine  buildings  were  erected  in  the  three  years,  1848,  1849,  and 
1850.26  These  building  operations  were  facilitated  by  the 
cheapening  of  lumber,  since  the  opening  of  the  canal  gave  access 
to  the  northern  lumber  regions.  In  1848  the  canal  brought 
large  quantities  of  pine  and  cedar  lumber  from  the  northern 
forests,  reducing  the  price  to  about  half  that  of  the  preceding 
year  when  the  supply  was  received  from  the  St.  Louis  and 

31  Annual  Review  of  Trade  and  Commerce  of  St.  Louis,  1852,  p.  9. 

22  Ibid.,  1848,  pp.  2,  10. 

23  Andrews,  Report  on  Colonial  and  Lake  Trade,  p.  220. 

24  Annual  Review  of  Trade  and  Commerce  of  St.  Louis,  1856,  p.  9. 

25  Drown,  Record  and  Historical  View  of  Peoria,  p.  146. 

26  Ibid.,  p.  147. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


421 


Pittsburg  markets.27  Business  prospered  generally.  By  1850 
the  importations  of  merchandise,  lumber,  and  other  commodities 
had  quadrupled  since  1847. 28  During  the  season  of  1850,  six 
packets  made  regular  weekly  trips  between  St.  Louis  and 
LaSalle.  Twenty-seven  steamers  served  as  tow-boats,  each 
towing  from  two  to  fourteen  canal  boats  each  trip.  Aside  from 
the  canal  boats  and  flat  boats  an  aggregate  of  1,286  steamers 
touched  at  the  Peoria  wharf  during  the  season,  an  increase  of 
more  than  300  since  1847. 29  The  number  of  steamers  at  the 
wharf,  however,  does  not  convey  a  correct  impression  of  the 
relative  amount  of  business  done  during  these  two  years,  because 
many  of  the  imports  and  exports  of  the  latter  year  were  carried 
on  canal  boats,  the  number  of  which  was  not  recorded.  A 
record  was  kept  only  of  the  steamers  that  had  them  in  tow.30 

The  remarkable  growth  of  Chicago  during  the  twelve  years 
of  construction  of  the  canal  was  far  surpassed  during  the  first 
six  years  of  its  operation.31  The  economic  development  of  the 
country  tributary  to  the  city  necessarily  caused  an  increase  of 
its  imports  and  exports  which  led  in  turn  to  an  increase  in  the 
population  and  wealth  of  the  city  itself.  The  population  of  the 
four  canal  counties,  which  had  increased  from  a  few  hundred 
in  1830  to  29,716  in  1840  and  80,926  in  1850,  more  than  doubled 


27  Drown,  Record  and  Historical  View  of  Peoria,  p.  105. 

28  Ibid.,  p.  107. 

20  Ibid.,  pp.  107-9. 

30  Ibid.,  p.  144.  The  exports  for  1851  amounted  to  $1,227,134.10,  the  most 


important  items 

of  which  were : 

Corn . 

. 628,719  bu.  at 

$0 

.40  per 

bu . 

. .  .  .$251,487, 

.60 

Wheat. .  .  . 

. 151,465  bu.  at 

.68  per 

bu . 

.  .  .  .  102,996 , 

.  20 

Oats . 

•35  Per 

bu . 

-  92,874. 

■°5 

Flour . 

. 35>753  bbls-  at 

4 

•  5°  Per 

bbl . 

•50 

Whiskey.  . 

.  5*685  bbls.  at 

10 

.  00  per 

bbl . 

-  56,850. 

00 

Wool . 

. . 250,760  lbs.  at 

•3°  Per 

lb . 

-  75,228. 

,00 

Dry  hides. 

. 10,701  hides 

at 

$2 . 00  per  hide . 

.00 

Coal . 

at 

2 . 50  per  ton . 

.  51.450' 

.  00 

Beef  cattle 

.  1,7 19  head 

at 

15.00  per  head . 

.  25,785. 

.00 

Hogs . 

at 

7 .00  per  head . 

. 185,572, 

.00 

Cooperage- 

— valued  at . 

.  47.785' 

.00 

Sundries — 

potatoes,  eggs,  fruit,  etc. 

.  25,000. 

.00 

Manufactures . 

.00 

31  Senate  Executive  Document,  No.  16,  34th  Congress,  3d  Session,  pp.  40,  41. 


422 


JOURNAL  OF  POLITICAL  ECONOMY 


in  the  next  five  years,  reaching  171,012  in  185 5. 32  Almost  an 
equal  gain  was  made  by  the  river  counties  from  LaSalle  to  the 
mouth  of  the  Sangamon.  From  40,536  in  1840,  their  popula¬ 
tion  rose  to  90,961  in  1850  and  128,462  in  1855.  It  is  thus 
seen  that  the  population  along  the  waterway  from  Lake  Michi¬ 
gan  to  the  mouth  of  the  Sangamon  River  increased  from  70,252 
in  1840  to  171,887  in  1850  and  299,474  in  1855.  But  the 
growth  of  population  was  not  confined  to  the  counties  immedi¬ 
ately  touching  the  canal  and  the  upper  course  of  the  Illinois 
River.  As  the  better  tracts  of  land  in  these  counties  were  taken 
up,  settlements  continually  spread  farther  back  into  the  unoccu¬ 
pied  sections.  By  1855  more  than  half  the  population  of  the 
state  was  to  be  found  north  of  the  Sangamon  River,33  and  the 
most  densely  populated  counties  lay  in  the  region  of  the 
waterway.34 

During  the  first  period  of  canal  operation,  from  1848  to 
1854,  the  population  of  the  city  of  Chicago  advanced  from 
20,035  to  74, 500. 35  But  the  enlargement  of  commerce  more 
than  kept  pace  with  the  growth  in  population.  The  grain 
exports  grew  from  3,001,740  bushels  to  13,132,501  bushels,  the 
shipments  of  corn  .alone  increasing  from  550,460  bushels  to 
6,837,890  bushels.30  By  1851  the  Chicago  exports  had  reached 

33  The  population  is  not  obtainable  for  1848,  the  beginning  of  canal  traffic, 
nor  for  1854,  the  year  when  railway  competition  began.  The  figures  for  1840 
and  1850  are  taken  from  the  federal  census  and  those  for  1855  from  the  Illi¬ 
nois  state  census  of  that  year. 

33  Of  the  1,300,251  inhabitants  of  the  state  in  that  year,  737,867  were 
north  of  the  Sangamon  River. 

Si  Of  the  five  counties  in  the  state  having  a  population  of  more  than 
30,000  in  1855,  Cook,  LaSalle,  and  Peoria  were  on  the  waterway  and  Madison 
and  Adams  on  the  Mississippi.  Cook,  Kane,  and  Peoria  were  the  only  counties 
whose  density  of  population  exceeded  1,000  per  square  mile.  Two  of  these 
were  on  the  waterway  and  the  other  was  connected  with  it  by  way  of  the  Fox 
River  and  was  also  within  wagoning  distance  of  Chicago.  Moreover,  since 
1851  Kane  County  had  been  connected  directly  with  Chicago  by  the  Galena  and 
Chicago  Union  Railroad.  Vide  Gerhard,  Illinois  As  It  Is,  pp.  221-24. 

55  Senate  Executive  Document,  No.  16,  34th  Congress,  3d  Session,  pp. 
40,  41. 

M  Annual  Report  of  the  Chicago  Board  of  Trade,  1905,  p.  19. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


423 


$5 >395  47 1  and  the  imports,  $24,4 10,400. 37  The  heavy  prepon¬ 
derance  of  imports  over  exports  is  accounted  for  chiefly  by 
the  fact  that  a  large  proportion  of  the  imports  passed  through 
the  canal  to  the  regions  whose  products  found  their  way  to 
other  markets.  Large  quantities  of  ready-made  clothing,  hats, 
caps,  boots  and  shoes,  and  other  manufactured  products  intended 
for  the  St.  Louis  market  were  imported  through  Chicago  and 
were  carried  by  canal  and  river  to  St.  Louis,  from  which  city 
they  were  distributed  to  the  newer  portions  of  the  West. 

The  extension  of  settlement  to  portions  of  the  state  not 
easily  accesssible  to  the  waterway  led  to  a  demand  for  railroad 
connection  with  the  markets.  Of  the  lines  of  railroad  projected 
to  meet  this  demand,  one  was  destined  to  come  into  inevitable 
rivalry  with  the  canal.  For  many  years  the  question  of  the  con¬ 
struction  of  a  canal  or  railroad  from  the  Illinois  River  near  the 
terminus  of  the  Illinois  and  Michigan  Canal  to  the  Mississippi 
at  Rock  Island  had  been  agitated.  On  February  27,  1847,  the 
Rock  Island  and  LaSalle  Railroad  Company  was  chartered  to 
construct  a  road  between  these  two  points. 3S  It  was  expected 
that  this  road  would  prove  an  important  feeder  for  the  canal 
by  developing  the  region  between  the  two  rivers  and  also  by 
tapping  the  upper  Mississippi  trade  and  drawing  it  to  Chicago 
through  the  canal.  An  amendment  of  the  charter,  February  7, 
1851,  however,  authorized  the  extension  of  the  road  to  Chicago 
and  designated  the  corporation  as  the  Chicago  and  Rock  Island 
Railroad  Company.39  It  was  the  evident  intention  of  the  legis- 


37  Andrews,  Report  on  Colonial  and  Lake  Trade ,  pp.  220-22. 


Of  these  imports  the  chief  items  were: 


Merchandise . 

$21,081,300 

Salt . 

$192,811 

Lumber,  shingles,  and  lath 

i,698>755 

Coal . 

150,000 

Iron . 

411,440 

Coffee . 

135,792 

Sugar . 

282,582 

The  leading  exports  for  the  year  were: 

Merchandise . 

$1,245,5°° 

Beef,  tallow,  and  hides.  .  .  . 

$523,644 

Corn . 

i,i59,674 

Pork,  hams,  and  shoulders 

400,816 

Furs . 

564,5°° 

Wool . 

326,083 

Wheat  and  flour . 

477,253 

Lard . 

238,140 

38  Crosby,  History  of  the  Chicago ,  Rock  Island,  and  Pacific  Railway,  p.  2. 


39  Ibid.,  pp.  2,  3. 


424 


JOURNAL  OF  POLITICAL  ECONOMY 


lators  in  granting*  the  right  of  extension,  to  make  the  railroad 
supplementary  to  the  canal  rather  than  a  competitor  for  its 
traffic.  Therefore,  following  the  example  of  New  York  regard¬ 
ing  railway  competition  with  the  Erie  canal,  the  act  granting 
the  charter  provided  for  compensation  to  the  canal  for  losses 
of  freight  traffic  by  reason  of  railroad  competition.40  It  re¬ 
quired  that  for  all  freight  except  live  stock,  carried  by  the  road 
when  the  canal  was  open  for  traffic,  and  originating  between  a 
point  twenty  miles  west  of  LaSalle  and  the  eastern  terminus  of 
the  road  at  Chicago,  the  company  should  pay  to  the  canal 
trustees  tolls  equal  to  those  which  the  canal  would  have  earned 
if  the  freight  had  been  carried  on  that  route.41 

Through  a  blunder  of  the  trustees  the  road  escaped  the 
burden  of  this  provision.42  A  formal  grant  by  the  trustees  of  a 
right  of  way  through  the  canal  lands  not  later  than  the  first 
Monday  in  June,  1851,  was  necessary  in  order  to  obligate  the 
company  to  observe  this  provision  of  the  act  of  incorporation. 
Advised  that  the  right  of  eminent  domain  could  not  be  exer¬ 
cised  in  the  case  of  land  g*ranted  for  public  use,  the  trustees 
refused  to  make  the  grant,  thinking  in  this  way  to  prevent  rail¬ 
way  competition.  The  company  instituted  successful  condemna¬ 
tion  proceedings  and  the  trustees  failed  in  an  effort  to  enjoin 
the  construction  of  the  road  through  canal  lands.  The  work 
of  construction  was  begun  in  April,  1852,  and  the  road  was 
operated  for  traffic  from  Chicago  to  Rock  Island  in  the  summer 
of  1854.  In  the  same  year  the  Bureau  Valley  Railroad  was 
completed  from  Bureau  Junction  on  the  Chicago  and  Rock 
Island  to  Peoria,  and  leased  in  perpetuity  to  the  latter  corpora¬ 
tion.  Thus,  before  the  close  of  1854,  the  railroad  was  in  com- 

w  Cf.  Prentice,  Federal  Power  over  Carriers  and  Corporations,  pp.  94,  95. 

41  The  act  granting  the  charter  also  provided  that  all  freights  carried  by 
other  railroads  extending  from  Chicago  to  points  on  the  canal  or  to  points  on 
the  Illinois  River  within  twenty  miles  of  the  terminus  of  the  canal,  should  be 
subject  to  the  same  rates  of  toll  as  those  imposed  on  the  Chicago  and  Rock 
Island  Railroad. 

43  It  is  not  probable  that  such  a  provision  could  have  remained  operative 
for  any  great  length  of  time.  It  was  an  impossible  provision,  as  the  experience 
of  New  York  proved. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


425 


petition  with  the  waterway  from  Chicago  to  Peoria  and  was 
supported  by  a  rapidly  developing  country  between  the  Illinois 
and  Mississippi  rivers  and  on  the  upper  Mississippi. 

The  opening  of  the  railroad  for  traffic  along  the  line  of  the 
canal  ushered  in  the  third  period  of  the  canal  influence.  The 
inevitable  contest  for  the  traffic  of  the  region  common  to  both 
transportation  lines  began  at  once.  The  railroad  easily  took 
from  the  canal  the  passenger  traffic,  which  had  assumed  con¬ 
siderable  proportions.  For  six  years  the  canal  and  river  route 
had  been  a  popular  one  with  western  travelers.  An  excellent 
line  of  packets  operated  between  Chicago  and  LaSalle  and  an 
equally  good  packet  service  was  provided  for  the  river  trip  from 
LaSalle  to  St.  Louis.43  But  within  a  few  months  after  the 
opening  of  the  railroad  for  traffic  practically  all  the  passenger 
business  deserted  the  canal  for  the  speedier  mode  of  travel.44 
The  contest  for  freight,  however,  was  long  and  spirited.  In  the 
end,  the  railroad  secured  most  of  this  traffic  also,  but  only  after 
its  service  and  its  charges  had  been  greatly  affected  by  the 
struggle.  Both  by  its  traffic  and  by  the  effect  of  its  actual  or 
potential  competition  on  railroad  rates,  the  canal  has  continued, 
decreasingly,  to  influence  the  development  of  the  region  in  which 
it  is  located.  Naturally  the  high-class  freights  were  the  first 
to  seek  the  more  rapid  means  of  transportation.  Lumber,  grain, 
coal,  and  stone  continued  to  be  transported  on  the  canal  in  large 
quantities  for  several  years  after  the  higher-class  freight  had 
chiefly  gone  to  the  railroad.  For  the  commercial  year  from 
April  1,  1866,  to  March  31,  1867,  33,929,632  bushels  of  corn 
were  received  at  Chicago,  of  which  9,575ffi^9  bushels  were  car¬ 
ried  on  the  canal  and  4,279,190  bushels  on  the  Chicago  and  Rock 
Island  Railroad.45  Of  the  10,713,981  bushels  of  oats  received 

43  Gould,  Fifty  Years  on  the  Mississippi,  p.  522. 

44  The  railroad  was  opened  from  Chicago  to  Joliet  in  1853  and  at  once 
became  a  favorite  route  for  passengers  between  these  two.  cities.  As  a  result 
the  passenger  traffic  on  the  canal  was  reduced  to  25,966  for  the  year.  With  the 
opening  of  the  railroad  the  entire  length  of  the  canal  the  following  year, 
practically  all  the  passenger  business  between  Joliet  and  LaSalle  also  deserted 
the  canal. 


45  Wright,  Chicago,  p.  154. 


426 


JOURNAL  OF  POLITICAL  ECONOMY 


during  the  same  period,  1,417,436  bushels  came  by  the  canal  and 
982,761  bushels  by  the  competing  railroad.46  This,  in  spite  of 
the  fact  that  the  railroad  operated  407  miles  of  line  and  drew 
its  traffic  all  the  way  from  central  Iowa.47  In  1873  and  ^74 
12,722,569  bushels  of  corn  were  transported  to  Chicago  on  the 
canal — an  annual  average  of  51,300  bushels  for  each  of  the 
124  miles  of  canal  and  river  route  operated  by  the  canal  com¬ 
missioners  in  competition  with  the  railroad.48  In  the  same  time 
the  Chicago  and  Rock  Island  Railroad  carried  to  Chicago 
8,547,187  bushels,  or  an  annual  average  of  6,284  bushels  for 
each  of  the  680  miles  of  road  then  operated  by  the  company.49 

By  the  reduction  of  canal  charges  from  time  to  time;  by  the 
personal  solicitation  of  freight  by  the  boat-owners;  and  by  the 
permission  which  the  boat-owners  gave  the  shippers  to  use  the 
boats  for  storage  purposes  when  canal  navigation  was  closed, 
the  canal  traffic  continued  to  increase  till  1882,  in  which  year 
the  tonnage  carried  was  1,011,287  tons.  From  that  year  till 
1899  the  amounts  of  freight  carried  annually  show  an  irregu¬ 
lar  decline.  Except  for  the  year  1898,  however,  the  tonnage 
stayed  well  above  400,000  tons  a  year  till  1900,  when  it  suddenly 
dropped  to  121,759  tons  and  has  since  continued  its  downward 
course.  While  the  reduction  of  canal  charges  assisted  in  pre¬ 
serving  traffic  for  the  boat-owners  and  in  keeping  up  the  canal 
tonnage,  it  operated  adversely  on  the  canal  earnings.  The  maxi- 

48  The  railroad  carried  1,420,163  bushels  of  wheat  and  179,316  barrels  of 
flour  as  against  83,834  bushels  of  wheat  and  45,317  barrels  of  flour  carried  by 
the  canal.  It  should  be  remembered,  however,  that  at  this  time  the  railroad 
was  completed  and  open  for  traffic  almost  to  Des  Moines,  la.,  and  drew  much 
of  its  grain  traffic  from  non-competitive  territory.  There  are  no  statistics 
which  show  what  proportion  of  the  wheat  and  flour  produced  in  the  canal 
region  was  carried  by  each  of  the  competitors. 

47  In  1866  the  main  line  of  the  Chicago  and  Rock  Island  Railroad  extended 
to  Kellogg,  la.,  and  the  Oskaloosa  branch  to  Washington,  in  the  same  state. 

48  Until  the  opening  of  railroad  traffic  between  the  various  Illinois  River 
towns  and  Chicago,  large  quantities  of  grain  were  sent  to  market  through  the 
canal  from  as  far  down  the  river  as  Beardstown.  By  1873,  however,  the 
greater  part  of  this  traffic  had  gone  to  the  railroads. 

^ Special  Report  of  the  Canal  Commissioners }  1875,  p.  10. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


427 


mum  tolls  were  received  in  1866,  and  amounted  to  $302, 958. 50 
By  1877  the  annual  tolls  had  fallen  below  $100, 000, 51  and  in 
1882,  the  year  of  the  maximum  tonnage,  they  were  only  $85,947. 
Since  that  time  the  decline  in  earnings  has  about  kept  pace  with 
the  decline  in  tonnage. 

In  recent  years  the  decline  in  the  traffic  and  earnings  of  the 
canal  and  in  its  relative  importance  as  a  transportation  route 
has  been  rapid.  In  1905,  of  the  7,944,955  barrels  of  flour  re¬ 
ceived  in  the  Chicago  market  21,216  came  by  the  canal,  while 
none  of  the  26,899,012  bushels  of  wheat  and  only  35,300  bushels 
of  the  92,489,761  bushels  of  oats  were  carried  on  the  canal.  As 
usual,  the  corn  shipments  exceeded  those  of  any  other  single 
commodity,  amounting  to  326,802  bushels  of  the  110,823,444 
bushels  received  at  Chicago.  Neither  rye  nor  barley  was  found 
among  the  shipments  on  the  canal,  although  2,392,444  bushels 
of  the  former  and  28,074,142  bushels  of  the  latter  were  received 
in  the  Chicago  market.  Of  the  1,110,371,601  pounds  of  dressed 
beef  and  1,160,572,790  pounds  and  144,909  barrels  of  pork 
products  shipped  from  Chicago  during  the  year,  not  a  pound 
was  carried  on  the  canal.52  Such  products  as  coal,  potatoes, 
beans,  salt,  and  corn  products  were  carried  entirely  by  the  rail¬ 
roads,  and  only  66,000  cubic  feet  of  stone  found  its  way  to 
Chicago  on  the  canal. 

The  ultimate  loss  of  the  canal  traffic  has  been  due  to  several 
causes.  The  first  in  point  of  time  was  the  condition  of  the 
Illinois  River,  which  often,  for  months  continuously,  was 
unnavigable  by  canal  boats  and  frequently  by  river  steamers.53 

60  Recent  canal  reports  give  the  tolls  for  1866  as  $202,958.  The  statement 
is  due  to  a  typographical  error  which  has  been  copied  from  year  to  year.  The 
correct  figures  will  be  found  in  all  the  reports  up  to  1882. 

61  Since  1879  the  gross  expenditures  of  the  canal  have  regularly  exceeded 
the  tolls.  In  1907  the  expenditures  were  $50,050  and  the  tolls  were  $2,176.87. 
In  this  year,  however,  the  canal  had  an  income  from  rentals,  water-power, 
leases,  etc.,  of  $11,933.79,  giving  it  a  total  income  of  $14,110.67,  and  leaving 
an  excess  of  expenditures  over  earnings  of  $35,939.34. 

63  Report  of  the  Chicago  Board  of  Trade ,  1905,  pp.  2,  5,  10,  16,  42,  43. 

63  Almost  every  year  from  the  opening  of  the  canal,  the  trustees  called 
attention  to  the  necessity  of  a  sufficient  depth  of  water  in  the  Illinois  River 
to  float  canal  boats  throughout  the  season  of  navigation.  In  1856,  from  the 


428 


JOURNAL  OF  POLITICAL  ECONOMY 


The  inability  of  the  canal  boats  to  navigate  the  river  necessi¬ 
tated  the  transfer  of  freight  to  the  river  steamers  at  LaSalle, 
with  the  consequent  delay  and  expense.  The  failure  of  steam¬ 
boat  navigation  restricted  the  canal  to  local  traffic.  The  canal 
management  recognized  the  importance  of  an  unobstructed 
channel  from  LaSalle  to  St.  Louis,  but  the  state  and  federal 
governments  acted  too  tardily  on  the  constant  appeals  of  the 
trustees  and  commissioners  to  afford  effective  relief.  The  fre¬ 
quent  interruptions  of  river  traffic  led  the  river  towns  to  rely 
less  on  water  transportation  and  to  turn  to  the  railroad  as  a  solu¬ 
tion  of  their  transportation  difficulties.54 

In  the  contest  for  traffic  the  railroad  possessed  not  only  the 
advantages  of  greater  speed  and  freedom  from  the  effects  of 
freshets  and  droughts,  which  so  seriously  affected  the  river  por¬ 
tion  of  the  waterway,  but  it  also  gave  a  more  convenient  and 
satisfactory  service  to  many  of  the  shippers  who  had  formerly 
used  the  canal.  Before  the  opening  of  railroad  transportation 
shippers  had  hauled  their  commodities  long  distances  to  the 
canal.  The  building  of  railroads  drew  from  the  canal  much  of 
the  traffic  of  these  outlying  regions,  by  offering  a  more  con¬ 
venient  transportation  route.  The  railroads  built  branches  and 
established  stations  at  points  more  convenient  to  the  farms  and 
inland  villages  than  were  the  shipping  points  on  the  canal.  The 
greater  convenience  of  the  railway  service  also  materially  aided 
in  taking  traffic  from  the  canal  in  the  canal  towns  and  cities. 
In  the  early  years  of  the  contest  between  the  rival  transportation 
agencies,  the  terminal  facilities  for  handling  freight  on  the  two 
routes  were  not  very  different.  Whatever  advantage  existed  was 
in  favor  of  the  canal.  Warehouses  for  the  receipt,  storage,  and 
shipment  of  grain  and  merchandise  were  established  on  the  banks 

middle  of  June  till  late  in  November,  there  was  not  more  than  twenty  inches 
of  water  on  some  of  the  most  troublesome  sand-bars  in  the  river.  Navigation 
was  practically  suspended  during  a  period  of  nearly  six  months.  The  trustees 
estimated  that  the  revenues  of  the  canal  were  reduced  $55,000  or  $60,000 
below  what  might  reasonably  have  been  expected  had  there  been  sufficient  depth 
of  water  to  navigate  the  canal  boats  carrying  through  freight. 

64 Annual  Review  of  Trade  and  Commerce  of  St.  Louis,  1854,  P»  n>  and 
1859,  p.  48. 


THE  ILLINOIS  AND  MICHIGAN  CANAL  429 

of  the  canal.  Mills  and  factories  largely  depended  on  it  for 
both  power  and  transportation  facilities.  But,  as  the  years  passed 
by,  the  railway  facilities  were  improved  and  those  of  the  canal 
-were  not.  Then  the  owners  of  warehouses  and  manufacturing 
establishments,  grain-shippers  and  others  largely  engaged  in 
transportation,  showed  a  tendency  to  desert  the  canal  and  trans¬ 
fer  their  business  to  the  railroad.  Wherever  business  establish¬ 
ments  were  kept  up  on  the  canal,  the  railroad  usually  constructed 
side-tracks  to  them,  and  became  a  competitor  for  business  on 
the  very  banks  of  the  canal  itself. 

The  terminal  facilities  at  Chicago  have  been  especially  advan¬ 
tageous  to  the  railroads.  Spurs  have  been  run  to  all  the  large 
manufacturing  establishments,  to  the  grain  elevators,  to  the 
lumber  yards,  to  the  stockyards,  and  to  every  other  point  where 
it  is  possible  to  place  a  track  needed  for  the  delivery  of  incoming 
freight  or  for  the  receipt  of  that  intended  for  shipment.  Many 
of  these  are  inaccessible  to  the  waterway,  while  through  the 
reciprocal  switching  arrangements  among  the  railroads,  they  are 
all  accessible  to  every  railroad  entering  the  city.  This  advantage 
of  the  railroad  over  the  canal  is  well  illustrated  in  the  handling 
of  building  stone.  When  the  stone  is  intended  for  use  at  any 
considerable  distance  from  the  canal,  it  is  found  cheaper  to 
transport  it  from  the  quarries  along  the  canal  by  rail  and  switch 
the  cars  to  the  nearest  rail-point,  than  to  pay  the  lower  freight 
rates  on  the  canal  and  incur  the  heavier  expense  for  the  longer 
haul  by  teams  in  the  city.  Relatively  few  of  the  grain  elevators 
are  located  on  the  waterway,  while  all  are  accessible  to  the  rail¬ 
roads.  The  same  is  true  of  the  coalyards.  Formerly  large 
quantities  of  coal  were  shipped  from  the  Spring  Valley  district 
to  Chicago  by  the  canal.  Now,  none  is  carried  on  the  canal. 

The  system  of  pro-rating  freight  charges,  however,  has  done 
more  than  any  other  one  thing  to  undermine  the  canal  traffic. 
The  practice  of  pro-rating  grain  from  the  canal  region  began  in 
1879  and  was  based  upon  an  arrangement  between  the  traffic 
officials  of  the  Lake  Shore  and  Michigan  Southern  Railroad  and 
those  of  the  Chicago,  Rock  Island  and  Pacific  whereby  the  Lake 
Shore  cars  should  be  hauled  by  the  Rock  Island  road  from 


43° 


JOURNAL  OF  POLITICAL  ECONOMY 


Chicago  to  the  loading-point  along  the  canal  and  be  returned 
loaded  for  transportation  to  the  seaboard  cities.  For  this  service 
the  Rock  Island  received  io  per  cent,  of  the  Chicago-New  York 
rate  with  a  minimum  of  two  cents  per  ioo  pounds  for  hauling 
the  cars.  Since  an  elevator  charge  of  a  cent  and  a  fourth  a 
bushel  had  to  be  met  at  Chicago  on  all  grain  shipped  on  the 
canal,  the  pro-rating  arrangement  proved  a  serious  obstacle  to 
the  canal  shippers  of  grain  intended  for  the  eastern  markets.55 
As  early  as  1877  William  Thomas,  the  general  superintendent 
of  the  canal,  complained  that  grain  was  being  driven  from  the 
canal  by  the  discrimination  of  the  owners  of  Chicago  elevators 
in  favor  of  the  railroads  and  by  injustice  in  grain  inspection.56 
While  there  may  have  been  some  basis  for  these  charges,  the 
tendency  of  the  grain  to  leave  the  canal  at  Joliet  seems  to  have 
been  more  largely  due  to  the  competition  of  the  Michigan  Cen¬ 
tral  Railroad  for  an  increasing  share  of  the  eastern  grain  ship¬ 
ments.  The  Michigan  Central  at  Joliet  and  the  Toledo,  Peoria, 
and  Western  at  Peoria,  with  their  eastern  connections,  have  been 
able  to  make  rates  on  eastern  grain  shipments  which  could  not 
Jhe  met  by  any  combination  of  local  rates.  As  a  consequence  the 
canal  has  been  unable  for  several  years  to  handle  grain  from 
these  points.  In  recent  years,  the  Peoria-New  York  rate  has 
ordinarily  been  about  a  cent  and  a  half  per  100  pounds  above 
the  Chicago-New  York  rate.57  It  is  clearly  impossible  for  the 
waterway  to  carry  the  grain  to  Chicago  and  transfer  it  to  east¬ 
ern  carriers  in  competition  with  this  rate.  Joliet  has  had  the 
same  rate  as  Chicago  for  grain  billed  through  to  New  York 
whether  it  goes  by  the  Michigan  Central  or  through  Chicago. 

55  The  statement  is  made  on  the  authority  of  Mr.  Noble  Jones  of  Mokena, 
Ill.,  who  was  a  grain-shipper  from  the  canal  towns  and  at  whose  instance  the 
pro-rating  arrangement  was  made  in  1879.  The  statement  has  been  verified 
by  Mr.  James  L.  Clark,  general  western  freight  agent  of  the  Lake  Shore  and 
Michigan  Southern  Railroad,  and  by  Mr.  William  Borner,  general  freight  agent 
of  the  Chicago,  Pittsburg,  and  Ft.  Wayne  Railroad. 

5S  Report  of  the  Canal  Commissioners ,  18 77,  p.  38. 

57  The  all-rail  rate  from  Chicago  to  New  York  during  the  last  ten  years 
has  varied  from  16.46  to  21.83  cents  per  100  pounds,  falling  below  17  cents 
only  in  1900,  1901,  and  1905.  In  August,  1906,  the  rate  was  17.50  cents  and 
that  from  Peoria  to  New  York  was  19  cents. 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


43 1 


Under  the  rules  of  shipment,  grain  may  be  unloaded  at  Chicago 
for  a  period  not  exceeding  ten  days  and  reshipped  on  the  same 
bill  of  lading.  The  result  has  been  that  all  grain  intended  for 
the  Chicago  market  from  Joliet  has  been  billed  to  New  York 
and  the  cars  used  to  carry  other  grain  from  Chicago  to  New 
York  on  the  through  bill  of  lading.58  At  other  points  along  the 
waterway,  however,  the  water  transportation  has  been  able  to 
withstand  the  competition  of  the  railroad  rates  on  grain  intended 
for  the  Chicago  market. 

The  canal  has  not  only  been  able  to  meet  the  local  rates  of 
the  railroads,  but  where  they  are  competitors,  it  has  forced  the 
railroad  rates  much  below  those  at  non-competitive  points  for 
similar  hauls.  In  1874  the  average  length  of  haul  for  grain  on 
the  canal  was  72.5  miles  and  the  average  rate,  3.47  cents  per 
bushel.  At  the  same  time,  the  Illinois  railroad  commissioners’ 
rate  for  a  haul  of  equal  length  was  7.48  cents  per  bushel.59 
The  Chicago,  Rock  Island  and  Pacific  Railroad,  however,  found 
it  impossible  to  maintain  the  maximum  rate  allowed  by  the  com¬ 
missioners  because  of  the  canal  competition.  In  1876  the  canal 
rate  on  corn  from  LaSalle  to-  Chicago,  99  miles,  was  3.25  cents 
per  bushel.  The  railroad  rate  was  4.50  cents.  From  Henry  to 
Chicago,  128  miles,  the  rate  by  river  and  canal  was  4  cents  per 
bushel  while  the  railroad  charged  4.50  cents  as  against  6.83  cents 
from  Tiskilwa  to  Chicago,  a  distance  of  123  miles.60  The  grain 
from  both  Henry  and  Tiskilwa  was  carried  by  the  same  railroad 
and,  with  the  exception  of  the  nine  miles  from  Tiskilwa  to 
Bureau  Junction,  it  was  carried  over  the  same  tracks  and  fre¬ 
quently  on  the  same  trains.  From  Peoria  R>  Chicago,  160  miles, 
the  railroad  rates  were  4.50  cents  a  bushel  during  the  winter 
season  and  3  cents  in  summer,  when  the  canal  was  in  operation.61 
The  freight  rates  on  lumber  showed  a  similar  influence  of  the 

58  This  advantage  has  been  lost  under  the  rearrangement  of  rates  in  north¬ 
ern  Illinois  since  the  passage  of  the  Hepburn  act. 

69  Special  Report  of  the  Canal  Commissioners,  1875,  p.  11. 

60  Report  of  the  Canal  Commissioners,  18 76,  p.  8. 

61  For  many  years  the  railroad  made  a  practice  of  charging  a  higher  rate 
in  winter  than  in  summer  at  all  points  where  it  had  to  compete  with  the 
waterway  for  traffic. 


43  2 


JOURNAL  OF  POLITICAL  ECONOMY 


waterway.  From  Chicago  to  Peoria  the  canal  and  river  rate 
was  $2.25  per  thousand  feet.  The  railroad  charged  $2,985. 
For  a  haul  of  substantially  the  same  length  from  Chicago  to 
Geneseo,  159  miles,  the  railroad  rate  was  four  dollars.62  An 
examination  of  the  schedules  of  local  grain  rates  from  various 
shipping  points  in  northern  Illinois  to  Chicago  in  1901  shows 
still  further  the  influence  of  the  canal  on  freight  rates  of  com¬ 
peting  railroads.  The  rates  on  the  Chicago,  Rock  Island  and 
Pacific  Railroad  had  been  determined  by  long  competition  with 
the  canal  and  by  the  possibility  that  much  of  its  traffic  might 
again  revert  to  the  canal  in  case  the  railroad  rates  should  be 
raised.  The  rates  on  roads  having  no  water  competition  were 
distinctly  higher,  as  shown  by  the  following  tabulation : 


Town 

Transportation  Route 

Distance  from 
Chicago 

Rate  per 

100  Lbs. 

LaSalle . 

C.  R.  I.  &  P.  R.  R. 

99 

5-5 

Dixon . 

C.  &  N.  W.  R.  R. 

100 

8.0 

Ottawa . 

C.  R.  I.  &  P.  R.  R. 

85 

5-o 

Mendota . 

C.  B.  &  Q.  R.  R. 

83 

6.5 

Marseilles . 

C.  R.  I.  &  P.  R.  R. 

77 

4-75 

Emington . 

Wabash  R.  R. 

77 

6.0 

Earlville . 

C.  B.  &  Q.  R.  R. 

72 

6.5 

Morris . 

C.  R.  I.  &  P.  R.  R. 

62 

4.0 

Chebanse . 

Ill.  Central  R.  R. 

62  (?) 

6.0 

JolietO . 

C.  R.  I.  &  P.  R.  R. 

40 

3-o 

Manhattan . 

Wabash  R.  R. 

40 

4.0 

Aurora . 

C.  B.  &  Q.  R.  R. 

37 

5-6 

These  lower  rates  from  the  canal  towns  were  necessary  in 
order  to  prevent  the  Chicago  shipments  from  going  chiefly  by 
way  of  the  canal.64  Until  recently  it  was  possible  to  load  the 
canal  boats  and  barges  to  the  depth  of  four  feet  and  eight  inches. 
With  a  fleet  load  of  from  16,000  to  17,000  bushels,  the  grain 
rate  from  Marseilles  to  Chicago  was  two  cents  a  bushel.65  The 

63  Report  of  the  Canal  Commissioners ,  1876,  p.  8. 

03  The  Chicago  and  Alton  and  the  Atchison,  Topeka,  and  Santa  Fe  rail¬ 
roads  also  compete  for  Chicago  traffic  at  Joliet. 

04  That  the  Rock  Island  rates  were  determined  by  the  competition  of  the 
waterway  is  shown  by  the  fact  that  the  non-competitive  winter  rate  was  higher 
than  the  competitive  summer  rates  and  by  the  further  fact  that  for  all  points 
beyond  reasonable  teaming  distance  from  the  waterway,  the  Rock  Island  rates 
were  similar  to  those  of  other  railroads. 

05  When  the  boats  could  be  loaded  to  a  depth  of  four  feet  and  eight  inches, 


THE  ILLINOIS  AND  MICHIGAN  CANAL 


433 


Ottawa  rates  were  two  and  a  fourth  cents  and  those  at  Utica 
two  and  three-eighths  cents.  Since  1902,  the  depth  of  water  in 
the  canal  has  not  permitted  the  loading  of  boats  to  their  full 
capacity.  The  rate  has  therefore  increased  on  the  average  about 
a  half-cent  a  bushel,  the  Marseilles  rate  being  now  2.5  cents.66 

Since  the  passage  of  the  Hepburn  Act,  there  has  been  a  general 
readjustment  of  railroad  rates  in  the  vicinity  of  the  canal.  The 
local  grain  rates  are  based  on  the  principle  of  distance  tariffs 
arranged  on  a  series  of  concentric  circles  with  Chicago  as  the 
center.  This  arrangement  has  resulted  in  a  decided  rise  in  rail¬ 
road  rates  in  the  canal  towns.  The  rates  at  Marseilles  have 
increased  from  4.75  cents  per  100  pounds  to  5.50  cents;  at 
Morris  they  have  advanced  from  4  to  5  cents;  at  Ottawa, 
from  5  to  5.5  cents;  and  at  LaSalle,  from  5.5  to  6  cents.  If  the 
railroads  adhere  to  the  established  rates  it  is  probable  that  the 
canal  traffic  in  grain  will  again  revive,  as  the  present  schedule 
gives  the  canal  an  advantage  of  from  a  cent  to  a  cent  and  a  half 
on  each  hundred  pounds.  Yet  it  is  not  probable  that  this  differ¬ 
ence  in  rates  will  turn  the  major  part  of  the  grain  traffic  back  to 
the  canal.  Other  advantages  of  the  railroad  will  tend  to  offset 
this  difference  in  rate,  especially  for  through  traffic. 

In  the  sixty  years  of  its  .operation,  the  canal  has  carried 
71,002,591  tons  of  freight.67  It  has  received  $6,610,067  in  tolls 
and  expended  $4,995,316  for  maintenance,  repairs,  and  opera¬ 
tion.  In  these  years  it  has  also  received  large  sums  from  rentals, 
leases,  and  privileges.68  It  has  not  proven  to  be  the  great  source 
of  revenue  for  the  state  treasury  that  had  been  anticipated  in  the 
days  of  its  projection  and  construction.  But  the  great  services 
of  the  canal  have  been  in  the  economic  development  of  the  Middle 
West,  particularly  of  the  noithem  part  of  Illinois,  and  in  its 
influence  on  railroad  rates.  j  yy  Putnam 

The  University  of  Missouri 

the  usual  steamer  load  was  from  4,000  to  4,200  bushels  arid  each  barge  load, 
from  6,000  to  6,200  bushels.  A  steamer  and  two  barges  make  up  a  fleet. 

00  This  charge  includes  the  entire  expense  to  the  shipper  for  the  delivery 
of  the  grain  to  the  elevator  in  Chicago. 

w7  These  statistics  include  all  the  period  of  operation  up  to  December  1,  1907. 

*8  The  canal  office  is  unable  to  furnish  statistics  for  these  items  complete. 


. 


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.  .  .  -  •  ••  .  -  •  v  . . 


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